Involuntary unemployment credit insurance is another type of insurance you can do without. This insurance might be offered with a credit card or auto loan and will cover your minimum payments, usually for up to 6 or 12 months, if you were to be laid off.
While the price can vary from lender to lender it is often too expensive for the small amount of coverage you get. Say your minimum payment was $100, the cost of insurance could be $25-50. So with some policies, you would be better saving that premium into your emergency fund for one year as your own form of insurance.
Putting the cost aside for now, what makes involuntary unemployment credit insurance even worse is that you might be paying the premiums but would be unable to claim when you needed it. The terms and conditions often exclude those who are part-time employees or older than 65, but much like mortgage life insurance, this product has been sold to those who don’t even qualify for it.
So what else can you do to protect your ability to make the minimum payments in the event of a layoff? While adding it to the emergency fund is one option, if you feel your job is rather secure you could instead use the money saved from not paying a premium to pay down more of the principle. This way you’re working towards eliminating the debt and increasing your ability to survive a job loss. Another form of security is to be prepared for unemployment by being ready to find another job. This includes keeping your resume updated and ready to use, as well as maintaining a strong professional network.
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The thing to keep in mind is that this insurance does not pay the $7000 you might owe on the credit card, just the $100 minimum payment.