Many Canadians use credit cards for their daily purchases. While some users pay them off completely when due, often through automatic banking services, others only pay the minimum payment monthly and never pay off the principal. All credit card consumers should be informed and considered the benefits of having balance insurance for their credit cards. Credit card balance insurance is a form of insurance that covers card users for unexpected life events such as disability, unemployment or death.
The card issuer must legally have the consumer’s consent before charging for balance insurance. This upsell is usually done while a consumer is applying for a credit card.
The insurance coverage commonly offers to pay a percentage of the outstanding balance for a defined duration of time. The coverage usually has a maximum benefit that will be paid out.
The insurance premium is usually collected monthly and is recorded as a purchase to the user’s credit card. The monthly premiums are calculated using the average daily balance and therefore fluctuate with the user’s spending. Most card companies do not collect a premium when the card has no monthly activity and no balance is carried forward. Furthermore, most card companies allow the coverage to be cancelled at any time.
Taking balance insurance is a way to ensure that a consumer’s credit card does not become a burden on the consumer and their family in the case of an unexpected event.
Balance protection also ensures that a consumer’s credit score is not damaged because of a life event that caused the credit card holder to be unable to make the monthly minimum payment or any payment at all.
Some consumers would benefit from taking on balance insurance. The options for coverage vary depending on the consumer’s preferences. For consumers with high risk jobs in which injury is possible, disability insurance should be considered.
Families with only one source of income can benefit from the extra insurance in case of unemployment and should focus on unemployment coverage. Consumers who carry a high balance and do not have job security should also focus on employment coverage.
The risk with balance protection is very low.
There is a monthly cost for this insurance which the consumer should know in order to assess risk and benefit.
The consumer should also ensure that details of the coverage are clear and understood before the user accepts the insurance. Note: Some employers offer insurance for such things as credit card balances and the consumer should make sure they are not already covered.
Many Canadians work to establish a good credit record and score. They do not want to jeopardize this position. Having insurance gives peace of mind that all payments will be paid in case of an unexpected life event.