What Is Involuntary Unemployment Credit Card (IUCC) Insurance ?

Involuntary unemployment credit card (IUCC) insurance promises to make payments on your credit card balances if you are out of work. While that can seem like a great idea, it also comes at a cost. This article explains how it works and offers some possible alternatives.

How Involuntary Unemployment Credit Card (IUCC) Insurance Works

Involuntary unemployment credit card (IUCC) insurance is typically offered by credit card companies to their cardholders but underwritten by third-party insurance companies. It promises to cover the minimum monthly payment on your card for a certain period of time and/or up to a certain dollar amount if you lose your job through no fault of your own but not if you quit or if you are self-employed. The cost varies from company to company but is often about 1% of your outstanding balance each month. You must purchase it while you are still employed, and there may be a waiting period before benefits begin.

IUCC insurance is often packaged and sold with other forms of credit insurance, such as as credit life and credit disability coverage. While still available in Canada and elsewhere, it has largely been eclipsed in the United States by so-called debt protection or payment protection plans sold directly by credit card issuers without the involvement of third-party insurers. According to a 2011 report from the U.S. Government Accountability Office, "Ten years ago, the largest credit card issuers rarely offered debt protection products and instead offered credit insurance, but today most issuers sell primarily debt protection products and rarely offer credit insurance to new customers."

If your credit card issuer still offers involuntary unemployment credit card insurance, whether it might make sense for you depends on a number of factors. Many of them apply to payment protection plans, as well. Among them:

1. How likely you are to be laid off—and how soon
2. How long you are likely to be out of work if you are laid off
3. How large a credit card balance you are currently carrying
4. What the insurance costs per month
5. Whether you have other financial resources you could draw on to make your credit card payments until you start getting a regular paycheck again

Let's say you have an outstanding balance of $5,000 on your credit card and your required minimum monthly payment is 3% of the balance, or $150. Your credit card company offers you IUCC insurance for a premium equal to 1% of your balance each month, or $50. Counting the insurance premium, you will have to pay at least $200 per month on your card until such time as you are laid off (if that ever happens). If the layoff doesn't occur for six months, you'd pay a total of $300 ($50 x 6) for the insurance coverage. Had you saved that $300 instead, you could have used it to pay the next two months' worth of minimum payments, which might cover you until you're back at work again.

Alternatives to IUCC Insurance

Buying insurance isn't the only way to cover your credit card payments. Here are some alternatives, all of which also apply to the newer and more widely available payment protection plans that card issuers now offer.

• Build an emergency fund if you don't already have one.
• Try to pay down your credit cards, ideally paying your balance in full each month so you don't incur interest charges.
• Think about expenses you could do away with if you no longer had a job.
• If you believe there's any chance that your job is in jeopardy, start looking and putting out feelers now. Don't wait for the boss to show up at your door with a grim look on their face.

The Bottom Line

Even if you can find it, involuntary unemployment credit card insurance may not be the best way to protect yourself and your credit in the event of a layoff. While your job might seem totally secure today it's always smart to plan ahead for what you'd do if you lost it. Getting your finances in order now can be the best form of insurance there is.