Credit-Card Insurance: Not So Sure!
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There are two types of credit-card “insurance.” According to consumer experts, one is useless and the other may have limited value.
Many credit-card companies sell credit-card theft insurance as protection against fraudulent purchases if your card is lost or stolen. But that insurance is essentially redundant: Federal law holds you liable for only $50 in bogus buys if your card falls into the wrong hands. Not only that, but most credit-card companies waive that fee if a card is reported missing within two days.
The other type of credit insurance ensures that some or all of your outstanding
balance will be paid if you lose your job, become disabled, or die. But this credit life insurance, as it is called, has a sumptuous price. The average rate is 75 cents for each $100 of loan coverage, meaning that if you carry a balance of $3,000, your monthly premium will run about $22, or $264 a year. A 2000 study by the Consumer Federation of America found that for each dollar customers paid in credit-insurance premiums, they received only 34 cents in benefits. That’s barely half the minimum 60 percent benefits-to-premium ratio recommended by the National Association of Insurance Commissioners.
Although credit life insurance pays the balance remaining if the borrower dies, credit disability insurance and credit unemployment insurance pay only the minimum monthly amount (typically 4 percent of your balance) for a specified number of months. A fourth variety—credit property insurance—pays to repair or replace items bought on that card. Many consumer advocates advise against buying credit insurance of any type.
From "Scam-Proof Your Life:
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