Is balance insurance on credit card “waste of money” or does it offer genuine peace of mind? Most credit card users are unable to answer this question – maybe because they aren’t even aware of balance protection!
Applicants (when applying for a credit card) are often not asked whether they want or don’t want balance insurance on their card. Additionally this feature is automatically added to the plan, unless asked to terminate by the user. Individuals who do know about this feature assume the balance protection on their card is mandatory, or part of interest charge. This isn’t so.
What Is Balance Protection?
Also known as balance insurance, this feature is like any other type of insurance i.e. benefits coverage of balance protection insurance also comes with requirements, eligibility, exclusions, and conditions. There is however one stark difference.
Unlike other types of insurance, credit card users don’t apply to the insurance themselves but are offered the coverage automatically. It’s up to the user to decline balance insurance coverage otherwise payment will still be carried out even if users don’t qualify or want/need the coverage.
Disadvantages of Balance Protection Insurance
The fact that balance insurance is tacked to coverage plans, without their knowledge or consent is reason enough not to like this type of insurance. There are other disadvantages as well, that can help you decide.
Pay High Premiums with Incredibly Low Payouts
‘Buyers beware’ is a warning that often accompanies balance protection insurance. A lot of details, challenges and exclusions have to be navigated with high premium payments, claims and low payouts.
While these payment plans vary between insurance providers, they all cover either minimum payment or the percentage in balance that you owe.
Pay Even If You Don’t Carry a Balance
Most credit card users try very hard to pay off outstanding credit card balance every month. Bad news for all dutiful payers! You will still have to pay for balance protection insurance even if balance is zero i.e. you cannot calculate the dollar per $100 owed in credit card debt.
How do banks calculate balance protection premiums? By taking your average daily balance – which is why users are required to pay even if they have zero monthly balance. It’s highly likely that some amount is owed, when it comes to the daily average.
You May Not Even Be Covered
Read the fine print detailing any balance protection insurance plan and you will notice 2 things. Not only are these plans incredibly complex to understand but terms and conditions are very specific. For example: if user’s death occurred due to suicide (within the first 6 months of the policy) beneficiaries mentioned in the benefits coverage will be disqualified from the payout.
You may be paying for benefits coverage that you don’t even need! Are you even qualified for the plan? Avoid the above by reading the fine print disclosed in your certificate of insurance that the company usually sends after initiating an account. Poor knowledge of your credit card usage and insurance plans can lead to bankruptcy, especially if your business is on the line. Yes – there are benefits of claiming bankruptcy – you can get help from EmpireOne to learn more.