Credit Card Insurance: Do You Really Need One?

You might have been offered by your credit card issuer, the likes of Citibank and UnionBank (mostly, automatically applied though), a credit insurance via a phone call.

I have received three phone calls already from Citibank for this. But it was just days ago prior to writing this when I finally got a chance to read the fine print, so to all those calls, I merely replied (yes, for three times already), “I’ll check on it first.”

Before you give in to the seemingly negligible addon charge to your monthly statement and the attractive coverage such which mentions about hospitalization and critical illness, read the fine print yourself first and see if you really need it on top of your existing traditional term insurance, i.e., if you already have one.

What is a Credit Insurance?

Credit insurance, per se, is an umbrella or general term for insurance products and policies associated with various lines of credit.

It is basically designed to pay off outstanding debts in case of the policyholder’s death, disability, insolvency, or and other reasons covered in the policy. Thus, it comes in specific types such as:

• credit life insurance (basically pays off existing debts upon death)
• credit disability insurance (upon becoming medically disabled)
• credit health insurance (though normally falling under credit disability, but it is particularly for unexpected sickness and hospitalizations)
• unemployment credit insurance (upon job layoff or involuntary unemployment)
• credit property insurance (for properties used for a loan)
• trade credit insurance (protection for businesses that sell goods and services on credit)

More Facts About Credit Insurance

[1] Credit insurance is an insurance policy normally attached to loans, mortgages, and credit card accounts.

[2] While its face value corresponds to the loan value that it is designed to pay off, it decreases overtime as the outstanding debt is paid down until such time that it is fully paid off.

[3] It comes with less stringent underwriting and health screening requirements compared to a term life insurance and other types of traditional insurance.

[4] It protects the interest of the lender, the bank, or the credit card issuer, being the beneficiary, but it also ensures that your debts are not transferred to your family as you die.

[5] While the payout or claim goes to the lender, it does not offer such flexibility, e.g., the bereaved family may not be able to receive the money nor use it for other more urgent expenses after your death.

[6] If your loans and debts are scattered, a term life insurance may provide better protection and benefits at a more reasonable cost than purchasing multiple credit insurance policies.

What is a Credit Card Insurance?

Now, the question is — where do we put credit card insurance in the diagram? When you get a credit card, you get a line of credit for your various personal purposes. What makes it different from the rest is that it is with a credit card.

Thus, we can put credit card insurance somewhere between the bigger term credit insurance and its types because technically, if we avail a credit insurance policy for a credit card account, it comes normally with a bundle of these types such as credit life and credit disability insurance (see Citi U-Shield Premier example below). That is also if we are more concerned about credit insurance for the credit card account we have.

Now apart from the many synonymous and just related terms to this such as credit protection insurance, balance protection insurance, and payment protection insurance which all boil down to — credit insurance — other more specific terms which cover product and travel-related purchases such as return protection coverage, purchase protection, and baggage delay insurance are also worth discussing. But, we’ll skip them for now.

To avoid further confusion, you may then consider credit card insurance, just like how most of its marketers and the web search results treat it — as an encompassing term for all types and subtypes of insurance products and policies attached to a credit card.

Moving forward, let’s talk about one good example of a credit card insurance product offered by Citibank Philippines (recently acquired by UnionBank) under Insular Life Assurance Company Ltd — the U-Shield Premier.

Citibank Philippines’ U-Shield Premier

As readily available in a click on the Citibank app, U-Shield Premier is an insurance product that assures to cover Citi credit card‘s outstanding balance in case of death, critical illness, or hospitalization.

It replaces its CreditShield (accordingly with the same benefits), i.e., after the Citibank Philippines’ takeover by UnionBank.

Credit Insurance Coverage. Subject to the terms and conditions which must be read first on the fine print, it basically covers the following:

• Credit Card Balance Protection. It covers the credit card’s outstanding balance (including any unbilled) plus the sum of the three (3) consecutive month’s statement balance up to a maximum of PHP2.5 million in case of death or diagnosis of a covered critical illness. For example, your credit card’s outstanding balance is PHP50,000, and your total last 3-month statement is PHP150,000. Upon your sudden death, the outstanding balance of PHP50,000 will be settled by Citibank itself as covered, while your bereaved spouse or beneficiary will receive PHP150,000 as payout.
• Burial Benefit. The insurance also pays an additional burial benefit equal to 100% of the cardholder’s outstanding balance, including unbilled installment principal, of up to PHP300,000.
• Hospitalization Benefit. It pays 100% of the credit card’s outstanding balance, up to a maximum of PHP625,000 per card account per calendar year, prior to the first day of the hospitalization if the cardholder is confined for at least three (3) consecutive days (including cases due to COVID-19).

Premiums. Citibank Philippines’ credit cardholders may avail this credit insurance for PHP0.76 per PHP100 of the credit card’s outstanding balance, that is also PHP7.60 per PHP1,000.

Or, if the regular outstanding balance per statement month is PHP20,000, one needs to pay PHP152 on top of it.

So, Do You Really Need a Credit Card Insurance?

While I have already decided not to get one for now, you may consider these points as you decide by yourself. Take note that these points are merely grounded on my opinion, experience, and research, and never to be taken as pieces of professional advice.

[1] Credit card insurance, just like any other credit insurance types, can still be a good option especially if you still don’t have any other insurance policies, e.g., term insurance, health insurance, and even a life plan, or if it’s nearly impossible for you to qualify for one.

[2] Your traditional life and health insurance policies, if you have these, already cover such cases as hospitalization, disability, critical illness, and death.

[3] Getting a traditional term insurance makes more sense than a credit card insurance if the goal in the first place is to protect the financial well-being of the beneficiaries.

[4] Your credit card insurance benefits are dependent on your credit card spending, the more you maximize its use, the higher the benefits. It defeats your purpose of saving for the long term.

[5] If you’re months or years past the golden age of your credit card spending, and possibly now averaging just PHP1000 on your monthly statement balance, then you should not, by any change, be in the worst situation.

[6] In most cases and in the long run, it is more expensive to get a credit insurance than a traditional term insurance. Payouts are also smaller when claims are filed.

[7] It may still be something to consider if you have just one credit card. If you have multiple accounts across banks, then taking out an insurance policy on each of these accounts is not a good idea at all.

[8] Other subtypes of credit card insurance such as return purchase protection and purchase protection are even least important especially if you are a responsible and controlled credit card user, but can be worth considering depending on situations.

[9] As NerdWallet writes, credit insurance ensures that the lender continues to receive payments if you can’t make them. You may not need it.

In the end, getting a credit card insurance, or even any other credit insurance types, is just an option and least of a priority as compared to traditional term and health insurance products.

If you’re still considering getting one, then start examining your financial goals, the insurance coverage on the fine print, and of course, your credit card spending.