Credit Card Insurance: Smart Choice or Not?

As we all know, credit card companies are notorious for nickeling and diming us with fees and add-on services. This is especially true now that the credit card reform is in full effect… since they can no longer hike our APR out of the blue, they’re seeking other avenues to make their money. Besides credit monitoring subscriptions, the most common add-on for them to peddle is credit card insurance. Should you buy it or not?

What are the benefits?
Well here’s a brief overview of the typical benefits:
If there’s a job loss, hospitalization, or you become disabled, payments on the account can be suspended for up to 18 months (some issuers offer up to 24 months).
In the event you die the balance is canceled up to a certain amount (some issuers cap it at $10,000, others may be $25,000)

If you have a qualifying “major life event” such as getting married, divorce, victim of national disaster, etc., payments can be suspended for 1 month (some issuers do this for up to 3 months)
Depending on the credit card company, the exact benefits may differ from the above, but this is more or less how they all operate.

How much does it cost?
During each billing cycle, you are charged around 1% of your total balance for this coverage –usually it’s $0.89 for every $100 of your balance.

Is it worth the cost?
When you were reading through the benefits, it probably sounded like a good deal didn’t it? Unfortunately once you review the fine print and run the numbers, you will see why this service is rarely worthwhile.

Let’s say each month your credit card’s average balance is $1,000. That could be from new charges that you pay off each month, or it could be from a balance you’re carrying long term –either way the program costs would be calculated the same… $0.89 x 10 = $8.90 per month. That would mean over the course of a year, you would be paying $106.80 total, which is over 10% of your average monthly balance.

For most people, I would say the odds are less than 50/50 that they experience any of the qualifying circumstances during a given year. But a lot of people are losing their jobs these days, so let’s involuntary unemployment did occur – your job loss happens at 6 months, and you remain unemployed for another 6 months. That would mean basically you are paying $106.80 to defer interest and payments on your $1,000 balance for 6 months.

Now let’s do the math. First of all, anyone could easily defer interest for free by using 0% credit cards for balance transfers. So right there is a free way to defer interest, if you negotiate for the balance transfer fees to be waived on the new card. Secondly, the minimum monthly payment on a $1,000 balance over 6 months wouldn’t be much – probably totaling around the same amount you paid for the insurance over the course of the year. So wouldn’t you be better off applying that amount to paying down the balance, rather than just deferring payment of the balance?

Conclusion?
I’ve gave you just one example, but I encourage you to get out your calculator and play around with a few hypothetical scenarios… you will discover the cost of the credit card insurance can rarely be justified.

The only situation where it might make sense is for someone that is nearing the end of their lifespan and they carry a large balance, but even then it may not make sense. Why? Because according to the fine print, the canceled balance will be considered taxable income for your estate. Secondly, their fine print also says they can cancel the insurance at “any time for any reason.” If there was an 80 year old with a $10,000 balance, would they decide to cancel his service? I don’t know the answer for sure, but I certainly have a good guess!

This post was written by Michael from CreditCardForum.com. His latest post is about the best balance transfer credit cards but he also blogs about other credit cards, as well as general news within the credit card and finance industry.

The Value of Technology ETFs

Using a technology etf is an interesting approach to understand technology related investments. After the economic melt down, most analysts turned to this tool to analyze technology indices and sub indices. The full form of ETF is Exchange Traded Fund. It is basically an investment plan, which may be traded as different types of shares all around the world.

The working of ETF is different in various parts of the globe. However, there are certain universal elements that never change. The Exchange Traded Fund must have an entry on the stock market. It must be operated constantly and the value of this investment plan is directly linked with the worth of the assets that has been compromised with it.

The shares coming under this category are generally bought on a large scale by big investors. The dynamics of this plan is different from the traditional ones and it can garner more money. The shares making up ETF are traded freely in the market. Apart from these, it has other advantages. It is not at all costly to own and it also provides instant exposure to the technical sector. No wonder then, that investors are tracking the technology indices with the help of Exchange Traded Funds.

Savvy investors buy and sell shares regularly operating it. Some of them even hold it for long, as in the case of mutual funds. In fact, according to the Director of Information Technology equity research wing of Standard & Poor’s, Scott Kessler, the technical sector has revived. The tech stocks rose nearly 8% in the month of May.

Basically technology etf is of 3 kinds. The sub-sector ones dealing in semiconductors and software, broad sectors, and new animatedly managed Exchange Traded Fund from Powershares are the three types. Through this diversified investment plan, companies can benefit a lot, especially IT sector. They can prove to be great medium to short term securities. They can enter in the unstable atmosphere and sustain exposure to particular companies.

According to the experts, the best ones in the business include Symantec (SYMC: 15.71 – 0.82-4.96% , BMC Software (BMC:35.82-1.03-2.80%) and Intuit (INTU: 34.36-0.85-2.41%) under the category of Powershares Dynamic Software. The value has been derived from their performance in the sub sectors. They are all strong performers in the sub divisions. The best three holdings in the Semiconductor category are Xilinx (XNLX: 23.91 -0.81 -3.28%), Analog Devices (ADI: 27.50 -0.58 -2.07%) and Broadcom (BRCM: 30.93 -1.57 -4.83%). The top three holdings in the Multimedia Networking segment of technology EFT include, Corning (GLW: 17.18 -0.32 -1.83%), Cisco (NASDAQ:CSCO) and Qualcomm (QCOM: 35.619 -1.051 -2.87%).