Sunday, December 22, 2024

“Circumstances are the rulers of the weak; they are but the instruments of the wise.” Samuel Lover

It doesn't take a genius to notice that our financial circumstances have changed in the last few years. But, it does take some thought to recognize which strategies are still sound and which ones need to be changed. Today we're going to talk about one that may need to be changed depending on your circumstances.

For years credit card holders have had the option of buying 'credit card insurance' on their accounts. There are a number of different forms. Some pay your account if you die. Others pay if you're disabled. The one that we're going to consider pays if you lose your job.

Before we begin, let's take a moment to discuss why we buy insurance. In it's purest sense, we buy insurance to pay for losses that we cannot afford to absorb ourselves. Often these losses are sudden, unexpected or out of our control. Think car accidents or a home fire or burglary.

Typically, it's foolish to buy insurance for things that we can afford to cover. You wouldn't buy insurance to pay for your next tank of gas. Presumably you can afford it and the paperwork plus the insurance company profit would just add to the cost.

The second thing to recognize is that it's usually cheaper to buy insurance that's broader. For instance regular term life insurance (that you can use however you like) is going to be cheaper than credit card life insurance (that will only pay your credit card bill).

OK, so today we're going to look at "involuntary unemployment credit card insurance". That's insurance that will pay if you lose your job.

For years, I've advised against this type of insurance. It's expensive. And, it's limited in what it covers. In fact, it's been a big money-maker for the credit card companies. Plus, you shouldn't carry a balance that you couldn't handle if you lost a job temporarily.

But, circumstances change. Given the economy, many people are concerned about losing their job. And, they're right. There is more risk than usual. It's only smart to consider how safe your job is. If you're not sure, here's a simple quiz that can tell you how risky your situation is. It was developed by a group of mathematicians who specialize in forecasting.

If you think that there's a reasonable chance that you could lose your job you should consider "involuntary unemployment credit card insurance."

Let's learn a little more about it. In the case of layoff they will make your minimum payment. The insurance only covers the payment on that one specific card. So if you have more than one open balance, you'll need more than one insurance policy.

Generally, they won't pay right away. You'll need to continue making the payment until you've verified that the insurance is paying your bill. If you don't pay and they don't either, you'll be facing late payment fees and a lower credit score.

You will need to meet the involuntary unemployment standards. Usually the insurance probably will not pay if your hours are cut by less than 50%.

The insurance will only make your minimum payment. It will not pay off th entire balance. That means that the unpaid balance will still be growing due to the interest charged. The insurance will only pay for a maximum number of months or a maximum dollar amount. So your payment is not covered forever.

They will not make minimum payments on anything charged after you are laid off. That can be important if you plan on using that card to help tide you over after a layoff.

Now that we know something about it, what steps would you take to investigate further? You'd begin by calling the credit card company. They'll put you through to someone who should know how their policy works.

Ask them how much it will cost. They should give you a cost per $1,000 of account balance and also tell you how much it would cost on your current balance.

Find out exactly what has to happen and what you need to do for them to make your payment. Know what is excluded. If you don't understand, ask questions until you do. Don't 'think' you know what's covered.

Make sure you're clear who needs to be unemployed. Is it your account? Your spouse's? A joint account? Know who needs to lose their job for the insurance to be triggered.

Find out what it will take to cancel the insurance later. Hopefully your job will be more secure at some point in the future and the insurance will not be necessary.

Decide what credit card you would use for routine purchases. Would that affect which cards you insure?

Once you've gathered your information give yourself a day to think about it. Discuss it with your spouse or a trusted friend/relative.

One final warning. Scammers may call you and claim to be from the credit card company. Do NOT give them your card number. If you want to buy the insurance, make sure that you're the one doing the calling.

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