Q. My credit card statements often come with offers to buy insurance in case my card is stolen, I become disabled or I lose my job. I typically charge more than $1,000 a month, and am wondering if the protection is worth paying a few extra dollars a month for.
A. Your need for credit card insurance depends on the type of insurance offered and your particular circumstances, financial planners say.
Insurance programs that cover the fraudulent use of your credit card are largely unnecessary. Federal law limits your liability to $50 of fraud losses per account as long as you notify the issuer within a few days that a card is lost or stolen. Many credit card companies will even waive the $50 if you let them know promptly. The protection also applies to unauthorized uses of your credit card number.
A second type of insurance offers to pay credit card bills should you become ill or disabled.
Read the fine print carefully. You might have to be enrolled in the insurance for a few months to make a claim. In many cases, your disability or unemployment status will have to be verified before you can activate the insurance.
"We ask our customers for documentation. For example, proof that you went to the unemployment office," said Steven Kietz, senior vice president of branding and relationship management at Chase Cardmember Services.
The Chase Payment Protector plan costs 69 cents per $100 balance on a credit card account. Accounts with a qualified crisis, such as a job loss or injury, can be frozen for up to two years, during which time cardholders do not have to make payments or face additional interest charges and late fees.
Other programs are different. Many policies cover only the minimum payment on an account, but not any interest charges or other fees that accrue. And you might not be able to keep using your card after the insurance kicks in.
Also, beware -- the insurance can cost almost as much as the minimum payment itself in some cases.
"It could be a good option for people who don't have any savings, or backup plan or who carry a balance," said Janet Kincaid, a senior consumer affairs officer at the FDIC's credit card center. "But if you pay up your balance every month, it wouldn't make sense."
Indeed, consumer advocates say there are other alternatives.
"Most credit card companies, if you call them up and say, 'I'm unemployed, I can't make the payment,' they'll usually make some kind of deal," said Marlys Harris, finance editor at Consumer Reports, who advises building up savings to cover emergencies, rather than relying on credit card insurance. "And remember, you have to have a pretty big credit card balance to not be able to meet the minimum."
Finally, some insurance services also offer free notification for all your credit card issuers should your wallet be lost or stolen. Although this service is handy, it's not necessarily worth paying for. Consumers who keep a list of their credit card accounts and issuers' phone numbers can take care of this themselves.
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