Australians have record levels of debt – especially credit card debt – so it seems sensible people would be concerned about their ability to repay their credit card debt. But is Credit Card Insurance the answer? We think that there are better options for most people and we aren’t alone. Both ASIC and Choice have serious concerns about credit card insurance.
Credit card insurance is designed to pay the debt you have on your card to the credit card provider in the event you die or you are too sick to work and can’t earn an income. But it often overlaps with other insurances, it’s expensive for the cover you get and it may not even help you when you need it.
Overlaps with other insurance
Credit Card Insurance provides benefits that are similar to the Life Insurance, Total and Permanent Disablement Insurance and Income Protection Insurance that lots of people will have through their superannuation fund. So you may already have insurance that provides similar benefits and you might not need Credit Card Insurance.
Credit Card Insurance is expensive
Compared to the cover you get under Life Insurance, Total and Permanent Disablement and Income Protection policies, Credit Card Insurance is really expensive.
The table below compares the cost of cover under these types of policies with Credit Card Insurance costs. These comparisons are based on generally available information and may not accurately reflect what you pay – so do your homework and check what you pay before making any decision that might affect your Credit Card Insurance.
Credit Card Insurance premiums have been calculated at 79c per $100 debt based on the average credit card debt of $4300. Monthly payment amounts are also calculated on a balance of $4,300.
Australian Super Life Insurance has been calculated for a 45-year-old professional. Premiums vary based on age, type of work and super fund.
It might not cover you when you need it
With this type of insurance there are usually a lot of conditions and exclusions. For example, some policies don’t cover all of your credit card debt – just a percentage of it. Some policies have wait periods of up to 6 months – so you have to be unable to work for 6 months before they pay out. Some policies only pay the amount you owed at the time of the claimable event – so any additional debts you have built up, any additional interest or fees and charges may not be covered.
Do your homework before making any changes
For MoneyBrilliant clients here is a direct link to the last 90 days of your Financial & Interest category which includes Credit card insurance premiums.
Don’t make changes to any of your insurance arrangements without doing your homework. Check what you are covered for and what you pay before making any changes. You should also consider speaking with a licensed financial adviser.
You might also want to have a look at what Choice found when they reviewed Credit Card Insurance and what ASIC’s thoughts on it are.