Is Credit Card Insurance A Real Insurance?

The short answer is “No.”  Real insurance policies, like life and health, are government-regulated.  Credit card insurance, on the other hand, is just an agreement with the credit card issuer - the “insurance” name is just a way of enticing you to buy into it.

In truth, credit card insurance is better referred to as credit card protection.  Basically, it involves your issuing company agreeing to absorb your  monthly minimums (think of it as an extended grace period) in the event that you’re unable to pay for a predefined set of reasons.  Take note that these qualifying reasons are very stringent - which can lead to you not getting the benefit unless you satisfy all the terms.

The fact that it’s a deal with the issuer instead of an actual third-party insurance is also the reason why you can’t take out a single credit card insurance to cover all your credit cards.  As such, if you keep numerous cards, you’ll have to pay the monthly “insurance” fees individually.  With costs averaging at between $10 to $20 a month, it adds up to a pretty hefty sum.  A suggested course of action is to get credit card protection only for accounts with high balance limits, to ensure at least a modicum of protection in case your finances go awry at some point in the future.

Most financial experts actually dissuade people from agreeing to credit card insurance and to use other alternatives instead.  A term-life policy is often suggested as a way to protect your family from your debt in the event that you die prematurely.  For job losses and other similar circumstances, though, there aren’t many viable alternatives yet.