The premise behind any kind of insurance has always depended on the uncertainty that exists in our future well-being. There’s car insurance, life insurance, even bike insurance to cover disasters that may occur. But did you know that many banks offer credit card insurance?
Credit card insurance works by promising a set of financial protections for your credit in the event of death or specified emergencies. For example, in the event of unemployment or illness, payments may be deferred for a certain period of time – years even – in order to allow borrowers the ability to get back on their feet. The insurance must be purchased by the borrower and paid into on a monthly basis.
While in theory credit card insurance seems like a protective measure for your finances, the terms and conditions make it near impossible to see real time benefits. Credit card insurance has always been a bit of a slippery practice and the terms set by the bank are less than generous in what they dole out in the event of an emergency. With the high monthly price tag, the strict terms, and the very limited set of qualifiers – the insurance may have helped a select few, but definitely not the majority.
At first glance, it’s clear that the banks benefit from this while the customers generally do not. However, it has emerged that this has the potential to be costly for banks as well – not to mention damaging to their reputations in terms of fairness. Now banks are responding.
Chase recently announced that it will end its credit card insurance program, called “Pay Protector,” a program that has been in place for more than 10 years. The Pay Protector program will be cut come June 1st, 2014 but Chase is offering free enrollment to its current users until that point. For those who have been paying over the long-term, this may not be much of a consolation.
Why This May Be The End of Credit Card Insurance
Though it may seem an unexpected end, it fits with other recent efforts to tighten standards. Chase’s abandonment of the credit card insurance program comes on the heels of a requirement to refund consumer fees that were deemed unfair by the Consumer Financial Protection Bureau. Other big banks have also had to make paybacks to consumers for similar reasons. Now banks are more wary to protect themselves and cutting services that may put them at risk for similar consequences. Credit card insurance is one of them.
Impact To Those Enrolled
To those unaffected by credit card insurance, this may be a quiet exit. But for those who have been contributing money towards credit card insurance that could have been used for paying down their credit card debt - it’s a big blow.
If you have been paying into a credit card insurance program, you may find yourself faced with limited options. Though not all banks are cutting these insurance programs quite yet, Chase’s move serves as a good reminder to reassess the value of such types of banking services. If you have been thinking about partaking in a similar program, you might want to think again.
Image Credit Alan Cleaver