What is Credit Card Insurance?
Some credit cards come with one or more type of insurance embedded in the card. Examples of these insurances include car rental insurance, trip cancellation insurance, trip interruption insurance, travel medical insurance and purchase warranty insurance.
Many financial institutions also offer balance protection insurance for their credit cards, which cardholders can purchase as an add on.
Balance protection insurance pays out the outstanding balance on your credit card (subject to any limits in the policy) or makes monthly payments on your behalf to your credit card issuer if your income is interrupted by unforeseen events.
How Does Balance Protection Insurance Work?
Here’s an example of how Balance Protection Insurance works:
Chris makes a lot of purchases with his credit card and sometimes runs up large balances. In addition, he doesn’t have much money to fall back on as rainy day fund savings, and he has little or no life insurance, disability insurance, job loss insurance, and/or critical illness insurance.
As a result, if his income was unexpectedly reduced or interrupted by circumstances such as job loss, disability, critical illness, or death, Chris (or his estate) could find himself in a financially precarious situation and unable to make his monthly credit card payments.
So Chris signs up for Balance Protection Insurance through the financial institution that issued his card, which will help him make monthly payments towards his outstanding card balance (subject to any limits in the policy) if his income is interrupted by unforeseen events.
Should Chris feel in future that he no longer needs Balance Protection Insurance, he can always remove the coverage and stop paying the related premium.
But as long as Chris has the Balance Protection Insurance in place, he can alleviate the worry and have peace of mind around how he would make monthly payments to his credit card issuer and continue to protect his good credit rating should his income be reduced or interrupted by unplanned circumstances.
What are the benefits of Balance Protection Insurance?
Balance Protection Insurance can reduce the burden of making payments to your credit card issuer and help protect your good credit rating, should your income be interrupted by unplanned circumstances such as job loss, disability, critical illness, or death.
What does Balance Protection Insurance Cover?
The specific range of benefits provided by this insurance will vary with the financial institution that issued your credit card, but benefits generally include coverage for disability, critical illness, job loss and accidental death and/or dismemberment. There are also plans tailored for specific client segments (e.g. students and spouses of the primary insured cardholder). The benefit amount also varies by credit card, with some paying the minimum monthly payments on your credit card if you lose your job or are disabled, and paying out the entire credit card balance if you are diagnosed with a critical illness, are dismembered or die.
If you already have enough term life insurance, disability insurance, job loss insurance, critical illness insurance, and rainy-day funds in place, you may not need Balance Protection Insurance on your credit cards. However, if you wouldn’t have enough money to continue making your minimum monthly payments on your credit cards if your income was reduced or interrupted by unforeseen circumstances, Balance Protection Insurance is something you should consider.
The premium you pay for this type of insurance is based on how much you owe on your credit card, and the type of coverage you have. There is usually a maximum limit on the amount of debt that can be covered (in many cases, a maximum of $25,000). Typically, the monthly cost for this type of insurance is about 99 cents (plus taxes) per $100 of your average daily credit card balance; or 59 cents per $100 of your average daily credit card balance if you’re 66 years of age or older.
All types of credit protection insurance coverage, including Balance Protection Insurance on credit cards, are provided under a group policy rather than being individually underwritten. This means that more Canadians can be insured at economical standard group rates.
