What You Need to Know About Credit Card Insurance Plans

Sept. 22, 2012 — -- It sounded like such a good idea at the time. It was 2009, the nation was in the middle of the Great Recession, the housing market was taking a serious blow, and Janet Summers* decided she needed a little protection from life's big changes.

Her husband still had work renovating homes in the Charlotte, N.C., area, and Summers had a job, too. But when a nice woman called from Sears to ask if Summers would like to sign up for an insurance policy on her Sears credit card, it sounded like a good precaution to take. And at about $80 a month, it seemed like a reasonable expense.

The caller said the insurance "would cover my balance up to $10,000.00 in case I lost my job, had to take care of a family member, or my husband became unemployed and I was the only one working," Summers said in a recent email. "So I took out the insurance believing that this is a good deal."

Over the next three years, Summers paid Sears $3,000 for the insurance. Even in the midst of the recession, her husband's company continued to profit, as many people who had planned to buy new homes decided instead to renovate the ones they already owned.

Then, this March, her husband lost his job. The financial impact hit immediately.

"It was booming there for a while, and all of a sudden it just stopped," Summers writes. "And that's when I had to use my credit card to pay some bills, buy groceries, gas for my car and buy his medication, etc."

Even if Sears did agree to cover the minimum monthly payments, interest would still continue to accrue on the principal, Detweiler points out. So even while it would give Summers a break in the short run, it actually would cost her more over time given all the extra money she would be paying in interest charges.