In this day and age, there seems to be insurance coverage for all sorts of things. While it’s always great to feel protected from life’s disasters, you may not necessarily need to purchase every kind of insurance available.
A unique type of insurance available to consumers is credit card balance protection insurance. This insurance is designed to protect your credit from severe damage in the event that you face financial hardship and can’t afford to pay your credit card bill. Sounds great, right? But what exactly are the details of this type of coverage, and do you really need it?
Key Points
- Credit card balance protection insurance is an optional policy offered by credit card providers that protects your credit card balance in specific situations.
- The cost of this insurance is usually based on your credit card balance.
- There are exclusions to coverage, such as pre-existing conditions and voluntary job loss, among others.
- This type of insurance may or may not be worth it for you, depending on your situation and whether you have other types of insurance coverage that can help.
What Is Credit Card Balance Protection Insurance?
Credit card balance protection insurance protects you financially in the event that you can’t pay your credit card bill on time for specific and covered reasons. Usually, consumers cannot pay their credit card bills due to financial hardship that arises from events such as the following:
- Job Loss: If you’re ever laid off from work, the insurance can cover a portion of your monthly minimum payment.
- Total Disability: If you become disabled and are unable to work, your policy can help cover your monthly minimum payment.
- Death: In the event of your death, the insurance can pay off the outstanding balance on your credit card.
- Hospitalization Or Critical Illness: If you’re hospitalized or diagnosed with a critical illness, your policy can help cover your monthly minimum payment.
It’s important to review the terms and conditions to understand what is and isn’t covered.
How Does Credit Card Balance Protection Insurance Work?
Credit card balance protection insurance works as follows:
1. Enroll
You can sign up for this type of insurance coverage through your credit card provider. Typically, this is done when you’re activating your card online or via a live customer chat.
2. Activate
In the event that you face an unfortunate event, such as job loss, disability, critical illness, or death, you should be covered.
3. File A Claim
You or your beneficiaries can file a claim if an eligible event occurs. To file a claim, you would generally need to provide proof and documentation, such as proof of job loss, medical records, or a death certificate, depending on the situation.
4. Benefit Payout
If your claim is approved, your policy will cover either a part or the full amount of your minimum monthly payment for a certain amount of period.
Learn more: What Is A Credit Card Cash Advance?
How Do I Apply For Credit Card Balance Protection Insurance?
You can apply for credit card balance protection insurance in person, online, or by phone. The insurance provider will be the same business from which you received the credit card. Usually, this is a bank, credit union, or another credit card provider.
This means you’ll need to have a valid credit card to apply for the insurance. Keep in mind that each credit card you have requires its own credit card insurance. Just because you have coverage on one card does not mean that coverage will extend to another card.
Is Credit Card Balance Protection Insurance Required?
No, it’s not mandatory. You’re not obligated to opt for credit card insurance when you apply for the card. You can sign up for credit card balance protection insurance whenever you like.
Use this to your advantage and take the time to consider whether credit card balance protection insurance is right for you.
Are There Events That Are Excluded From Coverage?
There are typically exclusions and limits to what is covered under a credit card balance protection insurance policy. Here are a few common examples:
- Pre-Existing Medical Conditions: Some insurers may not cover pre-existing medical conditions or disabilities.
- Voluntary Job Loss: If you quit your job on your own accord, you may not be covered.
- Suicide: Generally suicide is not covered if it is attempted within the first 6 months to 2 years of applying for the insurance.
- Certain Critical Illnesses: Only critical illnesses named under your policy are covered.
- Age Limits: Some insurers may place a cap on the age of the policyholder, as risk increases with advanced age.
Always check the terms and conditions of your policy before you agree to purchase one.
What’s The Catch?
It’s not really about whether or not there is a catch; it’s more about what your finances are like, and whether the cost justifies the protection.
If your credit card and its balance are your major financial concern right now, then balance protection might be a good option. But if your finances are very healthy and you’re confident that you have the funds needed to cover your balances if you experience a sudden loss in income, then you may want to pass on it.
What’s The Cost Of Credit Card Balance Protection Insurance?
The cost of this insurance is typically based on your credit card balance. For example, it could be $0.95 per $100 of the balance.
These fees are often calculated on a daily basis.
To illustrate how much you could be paying for this type of insurance, let’s look at various card balances and their potential associated fees. The following table assumes a fee of $0.95 per $100, calculated monthly, based on a 30-day month:
| Monthly Credit Card Balance | Monthly Insurance Fees |
| $2,000 | $19 |
| $5,000 | $47.50 |
| $7,500 | $71.25 |
| $10,000 | $95 |
Are There Fees Associated With Cancelling My Credit Card Balance Protection Insurance?
If you’re not getting any value out of your credit card balance protection insurance, you can cancel it at any time. Your certificate of insurance will notify you of any steps you need to take to cancel your insurance.
More often than not, you need to contact the insurance company directly to complete the cancellation. Once you cancel the insurance, be sure to get a confirmation from the insurance company in writing.
In general, there are no fees to cancel your credit card balance protection insurance. However, there could be a penalty if you cancel before the expiry date of the policy.
Review Period
Furthermore, there is something called a review period that most credit card balance protection insurance providers offer. The review period is typically 20 to 30 days after your coverage starts, depending on where you live in Canada.
During the review period, you can cancel the policy and receive a refund for any premiums you’ve paid. Once the review period is over, your insurance company will continue to charge the premiums every month, and you’ll receive coverage.
What To Consider Before Enrolling
The most important thing you need to do before signing up for credit card balance protection insurance is to make sure you read all the fine print and know exactly what is covered and what isn’t covered. Every credit card company’s balance protection plan will be different, and some are significantly better than others:
- Higher premiums to cover spouses
- Some plans don’t cover disability requiring hospitalization
- Some plans only cover your minimum payment, not your full balance
- If your balance is always low, then some high premiums may make the insurance policy a waste of money
Alternatives To Credit Card Balance Protection Insurance
There are several alternatives to credit card balance protection insurance that can provide similar financial protection:
- Life Insurance: This can help cover your debts in the event of your death.
- Disability Insurance: This can replace at least part of your income if you’re unable to work due to illness or injury.
- Savings: Having an emergency fund can help you cover unexpected expenses without the need for additional insurance.
- Employer-Sponsored Insurance: Check to see if your employer offers any group insurance plans that may cover your needs.
- Personal Loans: If you don’t already have insurance and find yourself having trouble covering your credit card balance, you may opt for a personal loan. This option might make sense if you can get a low rate to offset your high credit card rate.
Final Thoughts
While credit card balance protection insurance can be helpful in certain situations, it’s important to consider whether it’s worth the cost. Depending on your monthly balance, these insurance fees can add up. Plus, the coverage might not be as comprehensive as you might expect. If you’re thinking about buying this type of insurance, make sure to fully understand how it works and crunch the numbers to determine whether it’s right for your financial situation.
