If you’re fearful of losing your job in this time of mass layoffs, you may be tempted to opt-in to a credit card protection offer from your card issuer. Before you do, keep in mind that these offers are just one more way for credit card issuers to part you from your money.
For one thing, these plans effectively increase your overall cost of credit by more than 100%. If you currently carry a balance on your credit card of say, $2,000, and you’re being charged 9.9% interest, you’re paying about $16.50 per month in interest. Now add a fee of 99 cents per month per $100 in credit. That’s 20 times 99 cents, or $19.80!
While some of the smaller card issuers charge “only” 50 cents per $100, the big players such as American Express, Discover, Bank of America, and JPMorgan Chase & Co. charge high fees.
So the first thing to consider is cost. The second is the contract itself. There is NO guarantee that if you need this coverage, it will be granted.
The advertising for these programs say that in the event of job loss or illness the program will suspend your account, stop interest accrual, waive payments and stop late fees for a certain time period.
What they don’t say is that you must have been employed for a certain time period before you sign up, that you won’t be covered unless you’re a full-time employee, and that the self-employed get no coverage at all (even if they’ve paid for the coverage).
Many have waiting periods and require proof that you’re receiving State unemployment benefits. And of course, if you quit for any reason – tough. That’s not covered.
Job loss from temporary disability carries some stiff requirements too. Some of these plans state (in the fine print) that “You must be physically unable to perform any work or service for wages, gain or profit.” So if you have a broken leg and can’t perform your job as a cement finisher – you’re not eligible because you could physically go to work as a typist.
If you’re off work due to illness, most card issuers require a monthly note from your doctor. Fail to send the note and the coverage disappears.
Blogger Josh Smith says that when he wrote about this on his blog, he was inundated with replies from people who had been denied coverage. Some even had their plans cancelled as soon as they tried to file a claim – even those who had been paying for years.
Keep in mind that this is not an insurance plan – so your state insurance regulator can be of no help if you feel you’ve been defrauded through denial of benefits you’ve paid for.
One last note – credit card companies are also trying to sell a plan that will pay off your balance if you die. This is not only expensive, but completely unnecessary unless you have a co-signer on your account or you have an estate large enough to go to probate.
While they will try to collect from family members, they have no legal right unless that family member was a co-owner of your account.
Author:Marte Cliff
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