• Business and Finance
• Family
• Computers and Internet
• Auto and Trucks
• Education
• Health
• Hobbies
• Home Improvement
• Legal
• Marketing

• Home
• Arthur's Articles Home
• Browse Categories
• Browse Authors
• Submit an Article
• Search for Articles

Home » Business And Finance Articles » Credit Protection Insurance Just Another Consumer Ripoff

Credit Protection Insurance -- Just Another Consumer Rip-Off

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.

And here is another random article you might be interested in...

10 MORE Ways to Make Money with your Digital Cameras

1. Pet photos - advertise a Pet Photography business where you photograph pets with their owners. Most owners won't struggle to take a photograph with their pet all by themselves. You can be the one who makes it easy on them. Not only can you charge for the service and your time, but you can offer the photograph in it's digital form or as a print that you can mail to them later - either created by your own photo printer or by a photo processing service.

2. Fishing contests - be around at the end of a fishing contest to take photographs of the contestants that didn't even think about bringing a camera. Most fishermen are more concerned about fishing than carrying cameras, and most fisherman also want a picture of their stringer full of fish or the big one that they're going to have mounted.

3. Parades - be in position to get great shots of folks and floats in the parade and sell the prints back to the individuals or to their family members. The folks who take part in the parades are often way to busy to take pictures before or after, so someone who captures them in action might really be doing them a favor - and a profitable service.

4. Landmark and tourist photographer - if there's a famous landmark in your area, offer your photography services to tourists who want their photo taken in front of it. Even if the tourists are carrying a camera and get someone else to take their photo, often the camera won't be digital with a display so it means the tourists won't know how the picture turns out until they're long gone. With your digital camera, you should be able to show them it's a good picture.

5. Graduations - preschool, high school, or college graduations offer dozens, if not hundreds of opportunities to capture a significant moment in someone's life. If the family members of the graduate aren't located in as good a location or don't have as good a camera as yourself - you'll have even greater opportunity at getting the shots they couldn't.

6. Holiday Family Postcards - offer your services to families that want their picture taken and put on a postcard that they can send to their extended family and friends. By using your digital camera you can not only get photo-postcards through online photo-processors, but you can make the prints available in your online gallery and have the customers refer their extended friends and family there to purchase a larger print if they desire it.

7. Photo Novelty Items - take photographs of people that want the pictures of themselves of their loved ones imprinted on coffee mugs, mouse pads, keychains, tee-shirts, and other items. Usually you can find suppliers of such photo-transfer merchandise and equipment in business opportunity publications, such as "Mind Your Business 101: How to Select & Start Your Own Business"

8. Used Car Photos - work out an arrangement to take snapshots of cars for used car dealers who don't have photographs of their current inventory. If any of the car dealers don't have websites that need photographs you could, provide an additional service by learning how to make and maintain a website of their inventory.

9. Promotional slideshow production - taking digital photos of a convention, church, business, college campus, or other promotable location - you can create a digital slideshow on Video CD or DVD for your customers to promote their business, organization, or event.

10. Newborn photo service - parents of newborns are some of the busiest people in the world. Advertise your services on an on-call basis so that you can take informal snapshots for the growing family either before they leave the hospital, or after they get home. This way both parents and the child(ren) can be in more of the pictures all together, and the parents have one less thing to try and figure out.