Reader Question: Credit Card Debt Protection Program Won’t Cover My Spouse’s Death?

A reader runs into a major problem when trying to take advantage of the benefits she thought she had under her credit card debt protection plan after her husband’s death. What can she do?

Q: My husband and I were joint account holders on our Chase United Mileage Plus credit card. All of our statements from the credit card company listed both of our names, not just mine.

Months ago I enrolled both of us in their Payment Protection Plan, and during a phone conversation I checked approximately three times to see that both my husband and I were covered. (The representative said) Yes. Yes. Yes. Unfortunately my husband passed in his sleep in December 2010, but when I processed the claim I was advised that he wasn’t covered. They told me I did have a four-month grace period to pay the bill.

Numerous letters to the company offered no response and/or relief. I even wrote to Chase and again, received no answer. Then on their own, they offered me a complete refund for my insurance payments. This is incorrect. I don’t know where to go with this problem.

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A: Please accept our condolences on your husband’s death. First a little background on this question: credit or debt protection programs are offered by all the major credit card companies. According to a GAO report, cardholders paid about $2.4 billion for debt protection products with the top nine card issuers in 2009. These programs typically cancel balances or payments, or suspend payments, when a qualifying event—job loss, disability, or death, among others—occurs. Minimum payments are often suspended in the case of unemployment, for example, while the balance is often canceled if the borrower dies.

These programs are not “credit insurance,” which means they do not fall under the scrutiny of state insurance regulators. Most consumer advocates don’t recommend them because of their high cost and what they believe is a lack of adequate consumer protections. The amount consumers pay for these programs is high compared to the benefits they collect. The GAO report for example found that, “In the aggregate, cardholders received 21 cents in tangible financial benefits for every dollar spent in debt protection product fees among the nine largest issuers in 2009.” Instead, advocates encourage borrowers to use the money they would have paid toward a credit card protection plan to build an emergency savings account and/or fund a life insurance policy. “These programs aren’t a good idea,” says J Robert Hunter, director of insurance for the Consumer Federation of America.

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Your problem raised an interesting question, though. When you purchase credit protection for a joint account, are both borrowers typically covered? I had a hard time tracking down experts who could speak to that specific issue. Birny Birnbaum, an insurance advocate with Center for Economic Justice said in an email:

Payment Protection is sold on a single borrower basis or joint borrower basis. The cost is different—joint coverage is higher. The documents they received—the loan amendments covering debt cancellation and debt suspension—should specify whether there is single or joint coverage. Another way is to check how much was paid—it would indicate whether they were charged for single or joint coverage. Something around 90 cents per hundred of outstanding balance is single, something well over $1.00 per hundred for joint.

Birnbaum also added this thought:

With a joint account, single coverage seems implausible because the loan agreement would have to specify which of the two borrowers is covered.

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Reader Question (cont.) »

Image: Andres Rueda, via Flickr.com

Andrew Schrage with MoneyCrashers.com weighed in with these thoughts:

Unless she has recordings of those phone conversations, they don’t count as proof that her husband should be signed up. It sounds like she intended for both of them to sign up, but only her enrollment was actually processed. If she did it over the phone, Chase could indeed have an argument in their favor since many companies require each person to sign up individually. If he wasn’t on the phone, the customer service representative may have said that he could sign up, and then possibly sent them something in the mail for him to sign (but could not have signed him up without his approval). That’s why it’s so important when signing up for credit card protection plan debt insurance to make sure you have something in writing confirming who was signed up and when that person was approved for the insurance.

When she enrolled in the protection plan, she should have received documentation. Moreover, if she no longer has this documentation, she can request that Chase provide such copies, which should show who was properly enrolled under the plan. Ultimately, it seems entirely possible that she and her husband had a joint credit card account (which is why both of their names show up on the statements) but did not have a joint membership in the protection plan.

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Without seeing the written terms of your program, it is impossible to say whether the program you enrolled in should or shouldn’t have paid off the balance on your card when your husband died. But it is troubling that you specifically asked about joint coverage when you signed up over the phone, and did not get the coverage you thought you were getting.

The devil is usually in the details here: the fine print may contain exclusions and limitations that make it difficult to collect when benefits are needed. The GAO report found, for example, that approximately 70 percent of all benefit requests were approved in 2009, while about 24 percent were denied. It also reported that three of the largest nine issuers limited their loss-of-life balance cancellation benefit to $10,000 and three limited it to $25,000; the remaining three had no limit. In addition to the scenario Schrage described above, another possibility is that you were both “covered,” but that the program only provided limited benefits in the event of the death of one cardholder; payment suspension for four months, for example.

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As for your question about where you should turn with this problem, you may want to try reaching out to someone higher up at Chase. You can call the company’s executive customer service office: The Consumerist lists their phone number as 800-242-7399.

You can also talk with a consumer law attorney. Visit the National Association of Consumer Advocates to locate one in your area. You may also want to file a complaint with the Consumer Financial Protection Bureau and your state attorney general. While they typically don’t assist in individual disputes, they can step in when they see a pattern of problems. The GAO Report specifically recommended that the CFPB examine these programs so it would be good for them to hear from participating consumers.

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