There are many different cards and thus many different nuances to their balance protection insurance. The coverage may differ significantly. In general, they will pay your credit card when you lose your job, have a medical emergency or pass away. But some pay your minimum balance while some pay you 10% to 20% of your balance. Regardless, they are generally extremely overpriced.
If your employer already covers you for life and illness, then you have even less reasons to buy this. The general cost is about 1% of the balance added to your bill per month. It is a small amount that you might not notice. But actually, this is very expensive. Let’s do a quick analysis.
I googled credit card insurance and found an ad from one of the big 5 banks offering this product. Here is what it says:
Loss of Life / Critical Illness Accidental Dismemberment
A lump-sum benefit payment of up to $25,000 can be made towards your account balance
Coverage for spouse is included (except for residents of Quebec)
Total Disability / Involuntary Unemployment /Loss of Self-Employment Income
A monthly benefit of up to 10% of your outstanding balance can be made for up to 10 months (to a maximum of $25,000)
Disability Requiring Hospitalization for Accidental Injury
A single payment of up to 10% of your outstanding statement balance can be made for each 24-hour period of hospitalization (to a maximum of $25,000)
For every $100 of insured balance, you pay $1.19.
Imagine your average balance is $3000 a month. That is $35.7/month for this insurance. If you die, the insurance will pay out your balance which on average would be $3000, but $25,000 maximum. The insurer’s maximum risk is $25,000. But for $36/month will get you much more coverage with term life insurance. For this example, I am using a non-smoking male. Female rates are actually lower because they live longer. The table below shows various death benefits according to the age of the insured when the policy was bought.
And note, these are rates for policies that will cover you till the age of 65. Not the cheap ones that expires after 10 years. If you are concerned about will happen to your financial situation if you get critically ill, disabled or die, do it right and consult an insurance agent. Don’t waste your money on this.
