My brother asked me once about credit insurance. After quickly doing the math, it turns out to be a collosal ripoff. Why?First, what is credit insurance? It pays the CC min balance if you lose your job for some reason. It does not pay off the card, nor does it pay down your principal any faster than any normal minimum balance payment.So, lets do the math: Minimum payment is $2 per $100. Credit insurance is $0.69 per $100. In order to "come out ahead" paying credit insurance, you'd have to be unemployed at least 1/3 (0.345) of the time. And before you ask, self-employed downtime isn't considered "unemployment" by their definition. Also, if you reckon the $0.69 per $100 as additional interest - which it is - it adds about 10% (as it has monthly compounding) to the base interest rate of the card.So, the Foolish answer is that the vast majority of people would be better off using that $0.69 per $100 balance to pay down the card (or more Foolishly, to the snowball), or putting it into the e-fund.
I believe also there is a time limit. I saw a mortgage insurance, which paid the mortgage if you were to lose your job, proble is that ir would pay for only 12 months. Best to You.
Some "credit insurance" isn't even technically insurance. No carrier. The credit card companies got wise and got rid of the middleman ( the insurance company ). It is simply an agreement by the card issuer to forgive the minimum payments for the time you are ( by their definition) unemployed. Of course, your best situation would be not to carry credit card debt in the first place. Secondly, if you are out of debt then you should have adequate real insurance --- short term and long term disability and long term care, life insurance etc. that way you have cash flow for real living expenses -- not just debt load maintainance.
well I got an offer for credit insurance "cash this $15 check and you're signed up free for a month!" which promisesNO payments & NO interest charged (so they say) if you have one of these issues (laid off, etc.). It is tempting, because their maximum monthly fee is less than my monthly interest on this big loan (13K at 3.9 for life). But I'll probably just take the $15 & then get rid of it.joycets
I did this calculation as well a few weeks ago on some horrible offer that came in the mail. The truly laughable part was in the fine print: After paying credit insurance premiums for 84 consecutive months, you can keep it forever, free of charge.<sarcasm>You mean, if pay you 10% of my balance for 7 whole years, you'll pay my minimums if I'm sick or unemployed? Wow, how generous! Where can I sign up? </sarcasm>Jeff
The major problem with credit insureance is that I can't get rid of it.I am snowballing my other cards trying to lower them as well but my company, FCNB, requires credit insurance.Wish I could get rid of that after paying on time for 5 years.Joseph
A question: are you counting the credit insurance as part of the "interest rate" for snowball purposes?
Requires credit insurance???? Never heard of anyone requiring credit insurance except PMI on mortgages and that is only while equity is under 20%. Is this legal??? Doesn't seem so otherwise I would expect all places that lend would require it.herb
I am counting the credit insurance as interest in my snowball.I think that my card requires that I have credit insurance in order to have the card. If you don't want the insurance you can't have a card.I wish I could change it. :(Joseph
I think that my card requires that I have credit insurance in order to have the card. If you don't want the insurance you can't have a card.Joseph,No credit card can require that you carry credit insurance as a condition of the card.-Terry
Thanks Terry,I'm going to check my billing stuff and call them tomorrow. I've been paying $60 month on that crap thinking it was required.Joseph
JosephI would definitely check on that. I don't know of any card that requiress credit insurance and think that such a requirement would be against the law. If it wasn't I think every card and it's cousin would be requiring it rather than trying to convince people to accept it.herb
Joseph, I have to agree here, the other companys would definitely require it if they could. Let's hope you did not miss it in your contract. Also don't just take the lenders word, if you haven't called yet - (I was on vacation in Colorado so getting caught up) call, ummm maybe the BBB and ask where you can access the legal information on this, aw heck call to check on it anyway. Tell them you feel you were taken advantage of by this "requirement". Maybe someone can give you better directions on where to call.Good Luck to you, AK
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