Credit card protection: What is it and is it worth it?
Whether you’re tapping your card at a contactless terminal or shopping online using tokenization, credit cards are one the most secure ways to make a purchase.
This is due to the strict consumer protections in place for credit cardholders. You may already be familiar with how your card protects you from fraud. However, you may also have travel protections or rental car protections included as benefits in your credit card agreement. Depending on the card, these types of protections are made available to anyone with an eligible account without taking further steps.
But there’s another kind of credit card protection that comes with its own price tag: credit card protection insurance, which may also be known as “payment protection,” “credit shield” or “credit safeguard.” This add-on protection is meant to help if you fall into financial hardship and have difficulty making your credit card payments.
What is credit card protection insurance?
Credit card protection insurance is a form of protection offered by many card issuers to help cardholders in times of financial difficulty.
It’s a way for card issuers to offer cardholders a break from making payments until they get back on their feet. Credit card protection insurance is separate from other protections that may automatically come with your credit card. You have to apply for it and the cost will depend on how much you spend on your credit card each billing cycle.
Though the terms will vary by issuer, protection insurance allows you to pay a fee to your issuer now in exchange for leniency if you are unable to make payments in the future. For instance, you may be granted payment and interest suspension for up to two years, have your minimum payment lowered or have your account continued to be reported as current to the bureaus as part of your plan.
Is credit card protection insurance worth the cost?
If you find yourself facing financial hardship due to loss of employment or a disability, protection insurance can offer you a break from your payment obligation, which can help you avoid some of the very serious consequences of missing payments. And in the unfortunate event of your passing, your credit card balance will be cleared.
These can be very valuable benefits if you’re short on savings and dealing with long-term financial hardship.
Your protection insurance fee will incur monthly. The cost generally depends on your monthly spending; the more you spend, the higher your fee. This cost can add up over time, so it’s important to consider whether you’re willing to pay.
But while a credit card protection insurance policy can offer a great deal of protection, it isn’t the only option on the table. Especially if you’re facing financial difficulties, you may have more success by reaching out to your credit card issuer directly for assistance. Card issuers are stepping in to help support customers with assistance plans that won’t come at any extra charge to you.
Pros of credit card protection
- Financial protection during times of sudden unemployment, injury or medical disability
- Account may be reported as current to credit bureaus despite missed payments, protecting your credit score
- Your inability to make payments won’t result in exponential balance growth as interest compounds, since your interest charges may be suspended
- In the event of your passing, your balance will be wiped out, leaving no financial burden for loved ones to repay
Cons of credit card protection
- Protection is not free and will add to your monthly payments
- Purchases made after the claim are not covered and must still be paid
- Cards are insured individually, meaning an added cost for each card you wish to insure
- Not all emergency situations you experience may be covered
- The more you use your credit card, the more you’ll pay in fees
- Coverage doesn’t offer assistance for long-term hardship lasting more than two years
How to decide if credit card protection insurance is right for you
Whether you should sign up for credit card protection insurance or not may depend on a number of factors.
First, consider your finances — especially your savings. For example, if you have enough savings to cover expenses in the event of an emergency, this protection insurance may not be necessary.
Your current debt balance may also be a deciding factor. If you have a large amount of debt that you’re working to pay down, it may not be a bad idea to have credit card protection insurance. In case of emergency, it would allow you to suspend your credit card payments for a time and prioritize debt that can’t be suspended.
Other factors to consider may include your lifestyle, health and job security. If you have an extreme hobby or work in a high-risk field where you may be prone to illness or injury, having credit card protection insurance could be a great help. This is also true if your job has a high turnover.
Just be sure to read the coverage agreement carefully before signing off on any insurance plan to make sure that you’ll be covered for your specific needs.
Watch out for credit card protection scammers
While there are credit card protection insurance plans out there that can be a great support for people in financial need, there are also third-party providers out there charging for coverage that isn’t helpful at all.
These third parties may present fake policies that claim to cover fraud and protect your information, but they can result in you losing money or even access to your credit card account altogether. They may even claim to be contacting you from your card issuer; if someone calls you under this pretense, do not share your personal or credit card information.
Do your research on any company offering you protection against fraud or hacking. If you are interested in a particular service from your card issuer, including credit card protection insurance, you can contact your issuer directly. And always read the fine print of any agreement to ensure you know exactly what you’re signing up for.
Other types of credit card protections
While there are certain standard protections available with every credit card, such as $0 liability for fraudulent purchases, additional benefits and protections apply for certain cards. These benefits are meant to specifically offer protections for the purchases you make and come at no extra cost to you.
- Fraud protection: All credit card issuers offer fraud protection, which comes with a zero liability guarantee. Any fraudulent charges reported in a timely fashion by the cardholder will not be the cardholder’s responsibility. However, it’s important to understand the fine print for your card issuer’s fraud protection policy to know how you should deal with fraudulent charges.
- Price protection: This is less-common protection that allows you to file a claim on a purchase that you’ve made but later found at a lower price. Your card issuer will refund you the difference. There are usually restrictions on these refunds, such as the amount refunded, time since your original purchase or the number of claims you can make annually.
- Purchase protection: Purchase protection covers loss, damage or theft of an item. The time frame for reporting is usually 90 days after purchase. Depending on the card company, your item will be replaced, repaired or reimbursed. It’s also important to read the fine print on your card agreement since not all purchases are covered.
- Travel insurance: To leverage this benefit, you’ll have to pay for your travel using your credit card. Travel insurance policies vary greatly from one card to the next, so it’s important to read your card agreement to know exactly what is covered. Most commonly, travel insurance covers trip cancellation and lost or damaged luggage. Here are our picks for the best credit cards for travel insurance.
- Rental car insurance: If your rewards card offers this benefit, it will apply when you use your credit card to pay for the full rental agreement for a rental car in your name. Usually, credit card rental car insurance is secondary insurance, though some issuers offer primary insurance. Again, read the fine print of your credit card agreement to know exactly what is covered. Here are our picks for the best credit cards for rental car insurance.
The bottom line
So, is credit card protection insurance worth it? It all depends on your financial situation, but in the case that an unplanned life event throws a curveball at you and your finances, it may be the right move. If you decide to move in this direction, carefully review the terms and conditions so you fully understand what it is you are agreeing to.
