Bank of America's Credit Protection Plus allows a customer to have twice the minimum monthly payment canceled for up to 18 months for various reasons, including involuntary job loss and disability. For "Involuntary Unemployment," customers must qualify for state unemployment benefits, but they would not be eligible if the unemployment was the result of voluntary resignation, termination or retirement. There are additional requirements for students, non-profits and self-employed customers.
Bank of America's Credit Protection Plus allows a person signed up for the service to cancel the minimum monthly payment for up to 18 months for various reasons, including involuntary job loss and disability.
But why couldn't a consumer create his or her own rainy day fund to cover a small expense, such as a minimum payment?
Say the credit card holder signs up for a protection plan that costs $1 per $100 of the outstanding balance each month. That's an extra $20 a month if the credit card balance is typically $2,000 each month. Some plans can charge 59 cents, 89 cents or 94 cents per $100 a month.
"Save that amount each month, instead, and you'll have a small emergency fund to help cover your payments if you lose your job, etc.," said Gerri Detweiler, director of consumer education for Credit.com
Remember, we're talking about covering the minimum payment, not the entire bill, in most cases. Up to $10,000 of the balance would be covered under some plans, such as the American Express plan, if the person enrolled died.
The fine print of such a product could be overwhelming, too. Pay attention, for example, to such things as how much time you have to notify the bank if you lost a job.
The Bank of America product noted that a customer would not be eligible for the "Involuntary Unemployment" benefit if any of the following apply, including if you're a full-time student or work for a non-profit employer. It also did not apply in case of resignation, retirement or if you were terminated from your job because of willful misconduct or criminal misconduct.
Consumers need to take responsibility for their cards — not buy a low-return insurance plan, Woolsey said. "It can give you a false sense of security."
Before you buy, beware
Know what you're getting and how much you're paying for credit card protection plans:
•Read the small print and terms of any credit-protection plan carefully. If you're already jobless or disabled, signing up for a plan now won't pay your bills. You may have a deadline to apply after a major event takes place, too.
•Check your credit card statements each month to see if you may have unknowingly signed up for a credit-protection plan or credit-monitoring service that has a monthly fee.
•If you think the cost is too high, call a card issuer to cancel a credit-protection plan.
•Be sureservices you think are free don't have a hidden monthly fee.
•Take time to understand what exactly would be paid and when you'd be covered. The plans aren't as simple as you might like to believe.
Tompor also writes for the Detroit Free Press