Nowadays just about every credit card begs you to signup for their payment protection insurance. If you’re thinking about it (or already signed up) here are some important things you need to know.
All the plans out there are extremely similar, so let’s take a look at the Chase credit card payment protection plan as an example (disclaimer: the costs and coverage details may have changed since this article was originally written).
- Cost is $0.89 per $100 of your monthly statement balance. So if your billing statement was for $1,200 you would be paying $10.68.
- For job loss, disability, or hospitalization payments can be suspended for up to 2 years
- For eligible “life events” like marriage, having a baby, change of primary residence, and natural disasters, payments can be suspended for up to 4 months
- For one federal holiday per year (New Years, Labor Day, or Memorial Day) or for an eligible expense of $50 or more, payment can be suspended for one month (can only be used once per year)
- When the payment protection is activated, no new interest is accrued, no minimum monthly payments are due, and no plan fees are charged
At first glance this may sound like a smart choice, and in all fairness, the Chase credit card payment protection insurance is a bit better than the similar plans offered from some other banks. But it’s unlikely you would be getting your money’s worth with credit card protection insurance and here’s why:
1. Here’s why it’s too expensive
Let’s say your monthly credit card bill was $1,200 on average and you paid that in full every year. That means over the course of a year you would have paid $128.16 annually for the card’s payment protection, regardless of whether or not you used it.
Even if you did use it, during any given month your balance would have been $1,200. Think about it… is it really worth paying over 10% of your average monthly balance every year just for the ability to suspend payments?
2. You may have to jump through hoops to use it
In times like these, a benefit such as credit card protection for unemployment sounds like something there could be a real chance of using, right? Unfortunately yes, job security is non-exist nowadays. However it’s not always easy to activate this benefit.
For example, I came across a complaint by a man name Phil. Him and his wife had been paying for a payment protection program for 2 years, shelling out $216. When his wife lost her job and they tried to activate the benefits, here’s what they found out:
- You first had to be unemployed for 60 or more days
- They reportedly had to have a paper filled out by the unemployment agency at a cost of around $25
- Their most recent payment stub form the unemployment agency had to be sent in
- Once all that was sent in they were reportedly told approval may take up to 10 weeks
That poster didn’t specify which credit card company he was with, but I have heard from multiple people that activating the credit card payment protection insurance for a job loss is always tedious, regardless of the card issuer.
3. Your debt might only be deferred
Each bank runs their credit card protection insurance differently, but many of them only defer payments. That means your debt will remain the exact same amount from start to finish if you ever end up using the plan. Sure, you won’t be incurring any new interest charges, but if you were looking to avoid interest for a period of time you could simply use balance transfer credit card deals to accomplish that.
Bank of America credit card protection is one of the few plans that does cancel payments while the insurance is activated, but even when you take that into account, it’s still hard to justify the cost given all the drawbacks.
Credit card payment protection is a big money maker for the bank and rarely makes sense for the customer. Do you agree or disagree? Share your thoughts below.