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Credit_Protection_Insurance_--_Just_Another_Consumer_Rip-Off

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					Title:
Credit Protection Insurance -- Just Another Consumer Rip-Off


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923


Summary:
Credit protection insurance is a good example of a consumer rip-off that affects millions of people, yet
receives little attention in the financial media. Simply stated, you should NEVER buy "credit protection
insurance," or a "payment protection plan" or any other similar type of credit-related insurance. Let's take a
look at how these programs work and why they are a bad deal for the average consumer.


First, let's dispense with the scam version of this insurance. With id...



Keywords:
credit insurance, payment protection, loss protection, credit card insurance



Article Body:
Credit protection insurance is a good example of a consumer rip-off that affects millions of people, yet
receives little attention in the financial media. Simply stated, you should NEVER buy "credit protection
insurance," or a "payment protection plan" or any other similar type of credit-related insurance. Let's take a
look at how these programs work and why they are a bad deal for the average consumer.


First, let's dispense with the scam version of this insurance. With identity theft in the news so much lately,
con artists have set up telemarketing boiler rooms to call people and try to scare them into buying worthless
credit insurance products. Representatives will try to convince you that you're at risk if someone gets hold of
your card and starts making fraudulent purchases in your name. When they call, they may even pretend to be
from the "security department" of your bank. In fact, they may actually be part of an identify theft ring, with
the goal of getting you to disclose personal information over the phone. Or they may simply be trying to
make a fast buck by selling you an insurance policy that you absolutely don't need.


Under Federal law, you are limited to a maximum of $50 liability for unauthorized use of your credit card. If
you didn't authorize a charge, don't pay it! Follow your credit card bank's procedure for disputing bogus
charges. You simply don't need insurance to protect yourself from a situation that is already covered by
Federal law!


Now, what about those "payment protection plans" offered directly by the big credit card banks? These are
plans that promise to cover your minimum monthly payments for an extended period of time (usually 12-24
months) if you get laid off from your job, become hospitalized due to an accident or illness, or become
disabled. On the surface, a plan like this sounds like a pretty good idea. After all, how could you keep up
with your payments if you suddenly lost your job or became too ill to work?


Of course, you should not be carrying balances on your credit cards anyway. If everyone paid their balances
in full every month, then credit protection insurance would not even exist in its current form. You are
charged for the insurance based on the amount of debt you're carrying on the card, so if the balance is zero,
then there is no fee. In fact, some bank representatives use this as part of the sales pitch when trying to
entice people to sign up for that "free 3-month trial" on their payment protection plan! They attempt to talk
you into adding the insurance now, while you don't need it and when there is no cost, in the hope that one
day you will start carrying a balance. By then, you'll probably have forgotten you signed up, and you'll
wonder what those mysterious charges are on your statement every month.


If you do carry balances on your cards, credit protection insurance is still a very bad deal. To see why, let's
look at the math here. A typical loss protection plan costs 85 cents for every $100 of balance carried on the
card. So if you're carrying a debt of $5,000 on the credit card, it will cost you $42.50 per month to buy the
insurance. Over the course of 12 months, you will spend $510 under this scenario. That's equivalent to
paying an extra 10% in annual interest!


A light bulb should be shining over your head right about now. Why not take that same $42.50 per month
and use it to pay down the balance faster? Good question. When you consider that most consumers who
have credit protection carry it year after year, without ever becoming eligible for a claim against the
insurance policy, the amount of wasted money can add up to a truly staggering sum.


Continuing with our $5,000 example, with a typical minimum payment of $125/month, it will take more
than 26 years to pay off the balance in full, at a cost of $7,115.42 in interest. By applying that extra $42.50
per month that would otherwise go toward the insurance, for a total monthly payment of $167.50, you'll
have the debt paid off in only 40 months! And you'll have saved $5,435.22 in interest charges. It simply
makes no sense to waste this money , especially when you consider that the credit protection plan is
normally only good for 12-24 months anyway.


There's another important factor involved here. Credit protection is also a bad deal because the eligibility
requirements are so very restrictive. When you read the fine print, you'll realize that there are all kinds of
situations that aren't covered. Let's say, for example, that you've been fighting a medical condition for some
time. So you buy the insurance thinking it's a good idea. Eventually, you end up in the hospital for treatment
and recovery. Can you breathe a little easier knowing your credit card payments are covered? Nope. Most of
these policies have exclusions for pre-existing conditions. And there are numerous other loopholes that
allow the bank to deny your claim under the policy. In view of the lousy math and the restrictive nature of
this type of insurance, these programs should really be named "bank profit protection" instead of "credit
protection insurance." Instead of spending good money on an insurance plan that you will probably never
use, you're far better off applying that same amount toward paying off the debt early.
credit disputes letters

				
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