Citibank, with whom I have a credit card, today emails an offer for job loss protection, which will freeze my card account in the event of a job loss, hopefully preventing nasty negatives from hitting my credit report.

At $5 a month, this initially seems like a good deal.  But on closer consideration, it seems like a terrible deal for most people.  (I know--it's hard to believe your credit card company doesn't always have your best interests at heart.  You may want to use this snarky digression as an opportunity to put down the keyboard and take a valium).

If you have a giant savings cushion, and just use your credit card for convenience, this might not be a bad deal; you get a grace period to look for work before you have to start paying your bill.  (I'm sure there are all sorts of fees and interest charges that accrue if you use it, but presumably you're financially savvy enough to look before you leap.)

But I doubt that those convenience users are the folks for whom this type of service is designed.  Rather, it's people who are carrying a sizeable balance from month to month--the people for whom a job loss might well mean a near-instant descent into financial catastrophe.

Those people are using whatever room they still have on their cards as sort of emergency fund.  I'm sure we can all agree that this is a very bad idea, and that they shouldn't be doing any such thing.  I'm sure we can also all agree that they ought to floss two times a day, stop eating so much processed food, and engage in regular cardiovascular activity.  But we can lecture them later.  What should they do right now?

The problem with this sort of insurance is that to exercise it, you have to inform your card company of your job loss, at which point, they aren't going to lend you any more money.  As I say, if you've got a nice big emergency fund, that's not a problem.  But if you're living paycheck to paycheck, and then suddenly you don't have a paycheck, that's a disaster.

It's not that I can't imagine any circumstances under which this insurance would be useful--say, a two-earner couple where the second earner's income is enough to cover everything but luxuries and the credit card bills.  But I doubt most people will think it through so clearly.  In an extremely anxious time, many people will be happy to think that they have "insurance" against job loss, and only when they use it will they find out just how expensive that insurance is.

On the other hand, if the useless insurance makes a lot of people happy, I suppose that's something.

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