
You would never take out an insurance policy on behalf of your bank and pay its premiums, would you? But that’s exactly what you’re doing when your credit card company convinces you to buy life and disability insurance. The sales pitch plays upon fears of the unknown:
If you lose your life, your family would not have to make your minimums either. All for a low, percentage-of-your-balance fee.

Photo by Classyshot via Flickr
But what you’re really doing is making sure your creditor gets paid should something happen to you. And only the minimum monthly payments, while the rest of your debt gains interest until you can pay. In case of death, your balance owing will be repaid to your credit card company up to a certain dollar value, depending on your coverage eligibility.
But that’s not the only way your credit card lender benefits. By selling you the policy, it earns a handsome commission from the insurance company as high as 40%.
What’s worse, you could be enrolled without knowing it because of standard policy that automatically adds the insurance to your agreement — you can find it buried in the fine print. And not only for credit card accounts, but also other types of loans and credit lines. To add insult to injury, you may also pay interest on your policy as it’s added to the principal of a loan.
You can still protect yourself with life and disability insurance, just don’t sign up through your bank. You can find life insurance policies that will cover all your debts (not just one credit card or loan) that you can also name a beneficiary.
So next time you sign up for credit — be it a credit card, credit line or other type of loan, read the terms and conditions carefully, and ask your financial institution directly about its life and disability insurance policies so you don’t become a victim of this credit card company secret.

All posts by Linda Bustos
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Hi LINDA,
I completely agree with your comments. We already pay credit card companies huge amounts in interest, quite frankly i don’t know how they can justify wanting more in insurance payments by playing on our fears that we may be unable to pay off our debt. For the vast majority of people this is simply like pouring money down the drain.
As much as I see your point, I must respectfully disagree. Yes, they prey on your fears – but what if those fears came true? As someone who watched her father get ill and struggle because of his lack of disability insurance I feel it is a necessary expense to secure the future of your and your family in the event something happens to you. My father lost his house and pretty much everything because he could no longer work. The kicker is, he had disability insurance for years and years – 2 years before he became ill, he discontinued the policy because the premiums became too expensive. So had he continued paying the extra few dollars each month for the insurance, he wouldn’t be forced to live in squalor with so little money that he defaults on even the most minor payments. My advice: Make the expenditure – you never know when that predicament could happen to you.
@Jess — I am sorry to hear about your father. In this case, Linda was referring to life and disability insurance offered by your credit card company to pay off the credit card balance.
I totally agree that you SHOULD have life and disability insurance to cover YOU.
The disability ins offered and in some cases required when you carry a balance on a credit card should be investigated by an appropriate authority. I paid cc disability ins for three years prior to becoming disabled due to MS and was no longer able to work. When I tried to activate the insurance, they told me I was not qualified because I failed to disclose pre-existing blah,blah, blah; but, if you look at any cc application and specifically the section offering the disability insurance, you will note there is never a section on medical history or even any question regarding current health, just an accept or decline box. At first, they put me on a monthly payment plan, when I could no longer afford it, they told me they will obtain a judgment.
Okay, so obtain your judgment; I have no attachable assets – Social Security and/or disability income cannot be attached thru your bank. Judgment obtainable, but not collectible! Lesson to be learned from this tragic truth; the scam artists of this country are no longer just in the slums of our city or in the jails of our secluded suburbs; they are in our local banks, corporate offices, our city and county jobs, and as we all know, in holding high ranking appointed or (scary) elected positions.