When you feel like your job is teetering on a cliff due to impending layoffs, thoughts of every bill you have and how you are going to pay them are at the front of your mind. In this tidal wave of numbers, buying involuntary unemployment credit card (IUCC) insurance that offers to make payments on your credit card balances while you are unemployed seems likes a great idea. But does it work out for you in the long run?

What is IUCC Insurance?
This is an insurance policy normally offered by your credit card company to cover payments during a period of unemployment. Loss of self-employed work or quitting your job will not be covered. The amount that this service costs varies from company to company. However, it could be as much as 1% of your balance every month.

For some people the cost of IUCC insurance is worth it, but for others it isn't. You need to figure out how long you are going to be without a job, how close you are to paying off your credit cards, and if you could manage the payment without buying involuntary unemployment credit insurance. (For a related reading, check out Credit Scams To Watch Out For.)

When IUCC Insurance Makes Sense
Let's say you have a \$2,000 balance and your credit card insurance company charges you 1% each month for IUCC insurance. Your monthly insurance payment is \$2,000 x .01 = \$20. Your minimum payment is 3% of your balance, which equals \$60. You expect a layoff in two months and you don't expect to have another job lined up for at least 2 months. Your total payment with your credit card insurance per month is \$80.

When IUCC Insurance May Not Make Sense
On the other hand, let's say you have \$5,000 in credit card debt and the cost for credit card insurance is 1% of your balance each month. Your monthly insurance payment is \$5,000 x .01 = \$50. You suspect a layoff may be happening in the next few months, but you aren't sure. Your monthly minimum payment is 3% of your balance, which is \$150. You can afford the payment now, and you are able to put aside the \$50 a month you won't be paying for involuntary unemployment insurance into your savings to save up for future payments.

If the layoff didn't happen for 6 months, you'd pay a total of \$300 (\$50 x 6), which could have gone into a savings account to cover future payments or paid down your balance by \$300. If you didn't lose your job, you'd just be out the money for the length of time you kept the insurance.

How Does it Affect Your Credit?
You need to ask questions about how far in advance the payment is made so you don't have late pays on your credit report. If payments aren't reported on time, you will have a late pay and a huge drop in your credit score.

Cancellation Policies
Involuntary unemployment credit insurance can get pricey. Make sure you can cancel your policy quickly once you get another job. You want to ask questions such as:

• When is the insurance billing date?
• How far in advance of the billing date do you need to be notified in order for me not to get billed for the following month?

When you get this information, put it in a computer file or add it to your datebook. If you put it in your datebook, add both the billing date and the cancellation date to your monthly calendar for the next six months. (For more, read Five Keys To Unlocking A Better Credit Score.)

Alternatives

• Instead of buying IUCC insurance, try to pay down or pay off your credit cards, and/or reduce expenses so you have a manageable budget before you're layoff.
• Before you buy IUCC insurance, look at other bills that can be put on hold for free. Call your student loan lender to find out your options for postponing payments before you get your layoff notice.
• Activate budget emergency mode. Cut back on all unnecessary expenses down to specialty food items and stash the money in a savings account in case you lose your job.
• Apply for a new job as soon as you get your layoff notice. Beforehand, revamp your resume and browse internet job sites for potential places to work next.

Conclusion
The bottom line is that you want to keep your credit intact through all circumstances. However, you have other options beyond involuntary unemployment credit insurance. Buy the insurance only if the layoff is imminent and the job market is slow. Otherwise, evaluate your other options and be prepared in advance with a layoff-ready budget, a healthy savings account and resumes ready to go. Your job may be at risk, but your secure finances can minimize the impact.

For further reading checkout Expert Tips For Cutting Credit Card Debt

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