Your bank is perfectly happy to take care of your credit card payments in the event you can’t meet your obligations because you become disabled or die. But at what cost to you?
Read more: 7 kinds of insurance you can skip buying
An oldie but baddie is back
The basic pitch with what’s known by a variety of names—credit life and disability insurance or credit card protection polices chief among them—is that your lender will take care of your minimum payments in the event you can’t make your monthly credit card bill because of job loss or temporary disability.
This is really a more current version of what’s been called ‘croak and choke insurance’ (aka mortgage life and disability insurance) in the real estate financing field. With ‘croak and choke,’ you buy a policy that names your mortgage lender as beneficiary in the event of your death. And you get stuck paying premiums during the life of your loan that are roughly 10 times the free market rates for insurance.
In the credit card world, the sale of credit life and disability insurance has long been a booming area. The Government Accountability Office (GAO) reports that Americans spent roughly $2.5 million buying this garbage that protects lenders in 2009, the most recent year for which they have figures available. Yet the payout amount was only $500 million in benefits.
That’s a benefit of about 20 cents on a dollar for the money you paid in. With insurance, the typical payout versus premium should be around 80 cents.
‘You’re paying the premiums for insurance that protects not your or your heirs but the bank if you become disabled or die,’ Clark says.
‘Even worse, what you pay in premiums for this coverage is massive. According to calculations from the National Association of Insurance Commissioners, the premiums effectively are double what they would be if you were to buy such insurance on your own to protect yourself.’
You probably don’t need these types of insurance either!
Single-issue insurance policies are generally considered a ripoff by many consumer advocates, including Clark. Examples of such policies are those that only cover one specific scenario such as mortgage life insurance, cancer insurance and accident insurance.
Here are seven policies you can avoid in good conscience…
Extended warranties
They’re a common sell on electronics of all kinds, but Clark says they’re completely unnecessary. Want proof? Modern TVs only fail 3% to 4% of the time, according to Consumer Reports. Why would you pay extra for something that has a 97% likelihood of giving you no trouble at all?
Home warranties
If something goes wrong in your home, the warranty companies are brutally difficult to deal with. They require you to use their contractor only. That contractor may or may not come on schedule while you’re burning up in the heat of summer without AC or freezing in the dead of winter without heat, as just two examples. And then you’ve got a deductible on top of that!
Clark says home warranties are not worth the paper they’re written on!
Mobile phone insurance
Cell phone insurance typically runs about $120 a year. You have a deductible to meet — usually anywhere from $50 to $200 — and after paying that you often get a refurbished replacement phone. Not necessarily a new one!
Read more: 3 cheaper alternatives to cell phone insurance through your carrier
Identity theft insurance
Don’t pay somewhere between $9 and $15 each month for an identity theft protection package! You can get similar protection for free.
This company is offering a $1 million free identity theft insurance policy to all customers who sign up for their absolutely free service!
Credit monitoring
Credit monitoring keeps tabs on your accounts so you’ll be alerted in the event of identity theft. But Clark says there’s a better and cheaper option out there. It’s called a credit freeze.
Pet insurance
Chronic diseases generally aren’t covered, and insurers often won’t pay for known defects among certain breeds. And of course, no insurer covers pre-existing conditions. Watch out for a maximum limit on treatment for individual illnesses too.
Read more: These 11 dog breeds are most often blacklisted by insurance
