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Credit card disability insurance: a pure scam!

Perhaps you knew that. You can now take out disability insurance on your credit card. Several financial institutions offer this service. Is it really interesting? Not usually. We’ll explain.

How credit card disability insurance works

Taking out credit card disability insurance seems like a good idea. This should cover your payments in the event of illness or accident that renders you disabled. At least, that’s how it’s supposed to work! More on this below. You must pay a monthly premium to benefit from this privilege. It often represents a percentage of your balance.
Here’s how it should work in the event of disability:

  • You notify the credit card issuer
  • You provide the required medical evidence
  • You wait about 30 days for the insurance to start covering your payments. This waiting period is known as the waiting period. It varies from one institution to another

You are covered for as long as you are disabled, within the time limit defined in the contract. This usually varies from several months to 5 years, or even until you retire.

Coverage limited to minimum payment

Credit card disability insurance often covers only the minimum payment. For your information, this is the minimum amount to be repaid each month to avoid late payment charges. The remainder remains unpaid and continues to accrue interest.
Let’s take an example. You have a balance of $1,000. Your minimum payment is $30. In the event of disability, the insurance company will pay $30 per month. Interest is still charged on the remaining $970.
However, the minimum payment does not significantly reduce your balance. Your debt will continue to grow even if you are covered. In the long term, this could plunge you into a catastrophic financial situation.

Credit card disability insurance: a scam to boost returns for financial institutions

You’ve got it! Financial institutions continue to earn interest on the remaining balance. Your debts, on the other hand, can grow every month. Interest often accumulates at high rates. In short, this product serves only to increase the bank’s revenues.
For your part, you remain trapped by debt. You pay premiums for insurance that doesn’t even reduce your balance. Even worse! You take out insurance that may lead to insolvency or bankruptcy.

Stop credit card disability insurance!

Credit card disability insurance seems to offer valuable protection. But be careful! It’s often nothing more than a scam to boost the revenues of financial institutions.
Of course, some products are really interesting. That’s why you need to read the terms of the contract carefully before signing. How much are the premiums? How much coverage do I need? When is insurance valid? Some policies do not cover the consequences of a pre-existing illness.
In short, be vigilant and don’t be afraid to ask for explanations. You can also consider other options. Individual disability insurance, for example, offers better coverage.

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