Is Credit Card Insurance Worth It?

Are you considering payment protection insurance on your credit card? Do you know what payment protection insurance is? Well, payment protection insurance (PPI) is supposed to help you make your credit card payments in the event that you cannot make them yourself or if you become unemployed. These “events” must be covered by your PPI policy. Let’s say you become seriously injured in a car accident and are unable to work for a long period of time. Your payment protection insurance will cover the payments for you until you are back working and earning money. What is the cost of PPI? It is a small percentage of your outstanding debt balance. It sounds fair doesn’t it? Let’s take a closer look.

There are things that you need to consider with payment protection insurance. PPI does not always seem very cost-effective, and at times it can be downright expensive. Why is this? Depending on your situation, the cost of the insurance as well as the loan itself can incur interest every single month. Another disadvantage to using PPI is the required waiting period. That’s right. Once you file a claim, there is a waiting period before they begin to cover your payments. Unfortunately, most payment protection insurance policies only cover you for a set amount of time. This amount of time may be insufficient depending on the situation at hand.

It should also be noted that payment protection insurance only makes the minimum payments on your credit card. So, you are paying them a small percentage on your outstanding debt balance for their coverage. For them it makes sense, and money, to only pay the minimum. Unfortunately, this does not make sense for the consumer, and it certainly does not save you money.

So, here are some things to consider concerning payment protection insurance:

• Could you possibly get this kind of coverage from an insurance policy you already own?
• What are their cancellation terms? Do they allow you to cancel at all?
• What interest rate are they charging on your outstanding debt balance?
• What restrictions or stipulations do they have on job loss? (Sometimes a person will find out, after they have purchased their PPI, that they cannot be covered due to their particular situation)

When you are first offered PPI, the terms can be unclear, and it is easy to just say, “Sure, I will take it.” Do not make this mistake! This is a decision that can seriously affect, among other things, your credit score. So, consider all of the policy terms and your other options to see if credit card insurance is really worth it.

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