How does credit insurance/debt cancellation work?

October 22, 2010 1:14 PM

Will credit insurance programs pay if the individual is aware of and has been notified an upcoming layoff prior to enrollment?

YANML: I was recently notified that my position is being terminated this coming April. I intend to stay at my job until my separation date to take advantage of a retention bonus, and I'm not in any rush to rejoin the rat race.

A couple weeks back I acquired a credit card that offered credit insurance that would forgive my balance if I became involuntary unemployed for more than 90 days. If I enroll in this program now, use the card and pay the insurance premium, will my debts still be erased when I'm laid off? I'm worried that I would be exempt because I had been forewarned about my pending unemployment. And I won't get the full terms of service from the lender until after I sign up for the program.

Moral ambiguity aside, if I apply for other credit lines with this type of program, knowing that a 90+ day unemployment period is most likely on my horizon, is it likely the charges will be forgiven?

posted by anonymous to Work & Money (5 answers total)

I highly doubt any programs would actually erase your balance. More likely the program would allow you to suspend making payments on your balance without penalty for some period of time.
posted by ghharr at 1:19 PM on October 22, 2010 [2 favorites]

No one can possibly answer this without seeing the terms of the agreement. You can ask for the terms of the agreement and read it; it should be pretty obvious.

Having said that, I'm sure there is something that excludes this behavior. Even if it isn't expressly excluded, I suspect it's fraudulent behavior for which they could recover in a court.

(in other words, probably a bad idea).
posted by dpx.mfx at 1:21 PM on October 22, 2010

First-I would be surprised to find that your insurance pays the balance off. Typically, it just defers payments or perhaps makes them for you. You'll still be responsible for the balance. Second, decent rule of thumb is that if you are eligible for unemployment, you are eligible to file a claim. So it is likely that if your employer is planning not to fight you on unemployment benefits, you'll be able to have your credit insurance kick in as well. Keep in mind that it generally takes a while for the insurance to kick in-you will be responsible for several payments in the meantime, they will reimburse you but you'll still need to make them.

Big huge caveat-not having seen your agreement, this is pure speculation based on working with these programs in the past. Yours could be better, could be worse.
posted by supercapitalist at 1:36 PM on October 22, 2010

I guarantee you a credit card company is not stupid enough to leave a loophole in their credit insurance product that allows you to exploit a scheduled, anticipated termination. It's not like that's a particularly rare condition of employment. Since these products are straight up cash cows for their companies it's safe to assume that collecting anything turns out to be harder than you'd anticipate.
posted by nanojath at 2:03 PM on October 22, 2010

I've read some of these insurances. I do remember that you need to be insured for a period of time and they seem to only pay the minimum required while being out of work for up to 12 months. You are also not allowed to charge on that card. They pay the entire balance upon other things (I only remember death as one condition).

Googling has also shown many people have problems with getting the insurance to kick in at all. Or getting the full balance paid even if the condition is met (except they do seem to pay upon death).

Good luck.
posted by CodeMonkey at 11:32 AM on October 23, 2010