Friday, September 21, 2007
Question: I'm earning about P20,000 a month and when money is tight; I turn to my credit card or get a personal loan to make ends meet. Lately, I was offered an insurance product that will ensure my family won't have to pay my credit card balance in case something happens to me. Is this a good idea? Or am I just wasting money, which I could have spent towards paying off my obligations? – Joseph S. M.
Answer: A debt, whether it’s a personal loan, a credit card balance, a car loan, or a real estate mortgage, is an obligation. And like any obligation, it has to be fulfilled.
There may be times in one’s life, though, when unexpected unfortunate things happen: a layoff, an accident, disability, and death. In case of death, the estate of the deceased person would have to pay off the debt.
Banks and financial institutions have recognized the heavy burden of paying off a debt in difficult circumstances. This is why they have introduced credit card-related insurance. This is an insurance policy that can pay credit card debts or pay the minimum balance for a fixed period due should a person become disabled.
As there is no such thing as a free lunch, credit card-related insurance comes with a price. It can be bought through an insurance broker that will handle arrangements with credit card issuers or the financial institution granting the loan and the insurance underwriter or company.
Is it worth it to get credit card-related insurance? This is a question only the borrower will be in the best position to answer. Ask yourself: Is it worth it to get someone to help me pay off my credit card dues in the future when I can’t?
Those who charge only a little amount on their credit card monthly, or regularly pay off the total credit card balance at month’s end don’t need it.
Some people who own life insurance think that this should be adequate to cover any credit card debt or even personal loan they will acquire should anything untoward happen. Consider, though, that life insurance is usually bought for a specific financial need, such as children's education, family income protection, retirement, hospitalization, and so on.
Those with big balances on their credit cards (or foresee they would have big balances in the future), and those who have taken out a substantial loan will benefit from having credit card-related or loan-related insurance. But not all credit card-related or loan-related insurance policies are the same.
Read the fine print on what they actually cover. In the Philippines, credit card-related insurance was first introduced to Citibank credit cardholders. Dubbed Credit Shield, Citibank cardholders pay a monthly premium charge of .69 percent of their outstanding balance to enjoy the insurance coverage.
While Credit Shield is in effect, the insurer will pay off the minimum balance due on the credit card bill for up to six months should the Citibank cardholder become temporarily disabled? They will also settle the outstanding balance of the credit card account at the time of the cardholder’s death, occurrence of the permanent disability or diagnosis of the covered critical illness, so the family won’t have to take on this burden. However, credit card purchases after the occurrence of the incidents covered will no longer be paid for under the Credit Shield.
Recently, loan providers such as Citifinancial have introduced a variation that will insure one's loan – up to five times the loan amount – with the one-time premium payment. Called Loan Protect Plus, this insurance not only pays off the principal outstanding balance of the loan upon the death or permanent disability of the borrower but also pays the excess to the borrower’s beneficiary.
Should you decide to have credit card-related or loan-related insurance, read the terms and conditions of the certificate of coverage so that you are familiar with the details of your coverage. Ask about how to file a claim, and make sure your family is informed too.
Source:
http://business.inquirer.net/money/personalfinance/view_article.php?article_id=89242 |
