Just Say No to Credit Insurance – As Often as Necessary!

Disability, life and unemployment insurance on credit card balances is a sweet deal for credit card companies, which is why their agents will use pressure sales tactics, deception and subterfuge to get you to sign up for it .This useful tidbit of information came from a bank credit card representative who sat next to one of my staff members on the plane to Las Vegas for the NACBA workshop last week.

I remember just how expensive this type of insurance is from my days, before law school, as a licensed insurance agent. A quick search of the internet shows me that the situation has not changed from the early 70’s when I worked in the insurance business. It also led to a useful Wisconsin government site warning consumers about this type of insurance and providing a host of excellent reasons for avoiding it.

A typical credit life and disability policy charges 98 cents monthly per hundred dollars of outstanding balance, adding almost 12% to the total finance charge on a credit card loan. In exchange, the borrower gets a policy which promises to make the minimum monthly payment on that credit card for as long as the cardholder is disabled or unemployed, and to pay off the balance if the cardholder dies.

There may be time limits for disability and unemployment. Overall, payment in the most favorable (to the borrower/insured) scenario would be too low to make a significant difference in the finances of a disabled or unemployed person, who would still be stuck with most of the balance of his credit card debt upon emerging from the crisis situation. If the goal is to preserve creditworthiness, insurance of this type merely postpones its erosion. The creditworthiness of a person who has died is, of course, a non-issue.

A lender cannot require disability insurance as a condition of extending credit. Such insurance will probably be presented, amidst a mass of paperwork associated with applying for a credit card, with an opt-out clause buried in the details.

If you fail to notice the opt-out at this stage, you may be automatically enrolled, and have premiums added to your account balance. A creditor may offer insurance for a free trial period, and then make it difficult to cancel.

Alternatively, the borrower may get telephone or mail solicitations at a later date. Say no. Say it repeatedly and forcefully. Ask the salesman “What part of “NO” don’t you understand?” Reflect that a credit monger who has such difficulty with this single unambiguous syllable may not be entirely reliable when explaining to you half a dozen pages of fine-print legalese in the credit application.

Credit insurance protects only the creditor. If you have dependents who might be stuck with a large bill in the event of your death, smart credit counselors and financial advisors suggest will recommend taking out a term life insurance policy; the premiums will be lower and the benefits are much better. The deceased borrower’s heirs get a fixed sum payoff, and may decide whether or not to pay the indebtedness if they are the direct beneficiaries of the policy.