When you take a credit card, you might receive additional service offers from your credit card companies, including balance protection insurance.
In theory, credit card balance protection cover is designed to help cardholders in case of unexpected financial issues.
The promise is straightforward: If you can’t make your payment toward the outstanding credit card balance, the protection cover will kick in to help.
While it sounds like a smart investment, credit cardholders may want to consider whether credit card balance protection insurance is worth their money.
Our licensed insolvency trustees weigh in on the matter.
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Why would you need credit card balance protection insurance?
The concept behind credit card balance protection cover is easy to understand.
The balance protection targets individuals who worry about the consequences of a sudden event, which could affect their income.
As such, repaying your credit card invoices can become difficult when you face unforeseen financial problems.
Credit card balance protection insurance is designed to kick in if you’ve lost your job, or have become ill.
In theory, you pay insurance premiums so your outstanding balance can be settled.
The more outstanding balance you may owe, the higher the premium will be.
From the perspective of the cardholder, the insurance can cover the balance as long as you pay the premium.
Is there a catch?
The short answer is yes.
Credit card balance protection insurance is a product designed to generate profit for credit card companies.
In other words, the primary reason for the balance protection cover is that it makes money.
As you don’t get the most advantage from the protection, it becomes essential to familiarize yourself with the small print.
Firstly, balance protection insurance doesn’t cover every eventuality.
The agreement lists out all the cases where the protection will assist you with credit repayments.
For instance, TD Banks promotes its balance protection insurance specifically designed to help manage credit obligations on TD credit cards ‘in the event of a covered involuntary unemployment, loss of self-employment income, total disability, loss of life, dismemberment, critical illness, or disability requiring hospitalization.’
However, clients who want to benefit from the full protection will need to pay high premiums.
Additionally, protection plans vary greatly from a credit card company to another.
Unique situations that may be a risk for you might not be part of the protection plan at all, even if you’re ready to pay high premiums.
While some protection plans will pay the balance in full, others only provide cover for the minimum payment.
As a result, taking the credit card balance protection insurance can cost several hundreds of dollars for the year only to cover a few dollars in repayment toward your balance.
Lastly, the credit card protection plan is only designed to cover the credit card balance.
However, your credit card balance may not be the most relevant debt to tackle when you run into financial instability.
Is there an alternative?
Our trustees recommend other solutions to support you through financial difficulties:
- Life insurance;
- Income protection cover;
- Disability insurance;
- Emergency funds;
- Debt relief and settlement programs.
Are you dealing with credit card debts?
Before you consider balance protection insurance, discuss your options with our debt advisors on 877-879-4770.