Credit Card Insurance Explained

Four main types of credit card insurance exist. Each type has its own set of terms and definitions. Credit life, unemployment, disability, and property are the four types of credit card insurance that are commonly offered and purchased in the credit card industry.

Credit life insurance pays off the outstanding balance of the credit card debt in the event of the cardholder's death. Obviously, the debt should be paid to the company that issued the credit card to the cardholder. Therefore, it follows that the beneficiary of the policy needs to be the credit card company. It is up to the consumer to ensure that the credit card company is listed as the beneficiary. Likewise, if no debt on the credit card exists at the time of the cardholder's death, then no payment will be made.

Involuntary unemployment credit insurance pays the minimum balance due on the credit card in the event of the cardholder's loss of employment due to layoffs or downsizing. Any purchases made after the initial date of unemployment are not included. Therefore, no minimum amounts due on additional purchases are calculated or included in the payment that is made by the unemployment credit insurance. The primary purpose of this particular type of credit insurance is to protect the credit rating and score of the individual cardholder by keeping up with the payments on the minimum balance due.

Credit disability insurance pays the minimum balance due on a credit card in the event that the cardholder becomes disabled. Only the minimum balance due on the credit card is paid each month. Additionally, credit card purchases made after the initial occurrence of the disability are not covered by the credit disability insurance. Therefore, no minimum balance due on the additional purchases is calculated or added into the minimum payment that the credit disability insurance pays. Furthermore, a time limit is set and may vary among different credit card companies as to the length of time the minimum payments will be kept up. The primary purpose of this type of insurance is to protect the credit rating and score of the cardholder.

Credit property insurance cancels the credit card debt on any item purchased with that particular credit card in the event the items have been completely destroyed. The policy terms identify the specific circumstances by which the items in question must have been destroyed. Deductibles usually are not applied to the damages that are paid or canceled. In some cases, this type of insurance may protect the consumer should items purchased with the credit card become stolen. Some credit card companies include this insurance free of charge with their credit cards.

Individual variations of the above scenarios may exist. Therefore, the details, terms, and fine print for all credit insurance plans should be read and evaluated by the consumer.