What Is Balance Protection?
Balance protection refers to a form of credit card insurance that is also often called payment protection insurance.
Although the exact terms vary depending on the card, it generally covers only the minimum monthly payments on the card’s outstanding debt. This coverage is activated if the cardholder cannot make their payments due to illness, job loss, or other circ*mstances laid out in the insurance contract.
Key Takeaways
- Balance protection is a type of insurance offered to credit card users, which promises to pay off the minimum monthly payment associated with the card’s outstanding debt balance.
- This protection only applies if the cardholder cannot pay due to specified circ*mstances, such as illness or sudden unemployment.
- Balance protection can protect the customer from defaulting on their credit card debt, but it does not prevent the growth of that debt.
How Balance Protection Works
Balance protection is an insurance product sold to credit card users. It is intended to protect policyholders from the risk that they will be unable to cover their minimum monthly payments when specific circ*mstances arise. Credit card companies offer balance protection to cardholders for a fee and will cover monthly payments if the individual becomes disabled, unemployed, or dies. Importantly, these circ*mstances are limited in nature and must be explicitly included in the insurance contract—with illness or sudden job loss being the most common examples.
Although some balance protection plans offer more generous coverage, most only provide the minimum monthly payments on the policyholder’s card, not the overall outstanding balance. This means that, in theory, a policyholder who becomes ill or unemployed could still face a debilitating debt burden despite having purchased balance protection. Although the insurance plan would prevent them from defaulting on their credit card, the unpaid balance would incur interest charges and grow from month to month.
In this manner, balance protection can be viewed as insurance against the default risk and the corresponding negative impact on the cardholder’s credit score.
How Much Does Balance Protection Cost?
The cost of credit card balance protection varies depending on the card. According to American Express, for example, the cost can be a monthly charge of 85 to 97 cents for every $100 on your balance. If you carry a balance of $5,000, this protection would cost you nearly $500 a year. Other cards may charge as much as $1 for every $100 of debt carried on a credit card.
Financial experts often counsel that it is wiser to use any money you might spend on balance protection fees to pay off the balance on a credit card or to purchase life insurance that would help cover your financial obligations in the event of an accident or job loss.
Example of Balance Protection
Kyle and Shawn use their joint credit card to cover their expenses. In recent months, their outstanding balance has grown from $500 to more than $5,000. In light of this, they have become concerned that this debt burden might become too large to bear, particularly if one of them loses access to their income source due to illness or a sudden job loss.
To remedy this situation, Kyle researches the balance protection plan offered by their credit card company. Kyle and Shawn note that the minimum monthly payment on their credit card is approximately 1% of their monthly outstanding balance. Therefore, in their current situation, their monthly payment would be $50, which is the monthly premium charged by the balance protection plan. The pair decide to take the balance protection to be safe while actively trying to pay down their balance and then get rid of their balance protection insurance.
FAQs
These are optional plans that protect your outstanding balance (the amount you owe on the card). If an insured event occurs (such as job loss), you can file a claim with the insurer, and any approved benefit would be applied to the credit card account to help reduce or pay off your credit card balance.
How does carrying a balance work? ›
Carrying a balance on a credit card means not paying off the credit card bill in full before the due date. If you carry a balance, the credit card issuer may charge interest on what's left over as well as any new purchases.
What is the protected balance for a credit card? ›
Protected balances are amounts owing on the account that under law are not subject to an increase in interest rates or fees. In general, a protected balance includes any charge incurred before or within 14 days after we send notice of such an increase.
How does credit protection work? ›
A Credit Protection Insurance premium is the amount of money that someone pays for insurance that will pay out a loan balance (up to the maximum specified in the certificate of insurance) or make/postpone debt payments on the customer's behalf in the event of death, disability, job loss or critical illness.
How does balance work in money? ›
An account balance reflects total assets minus total liabilities. In banking, the account balance is the money available in a checking or savings account. The account balance is the net amount available after all deposits and credits have been balanced with any charges or debits.
How to remove balance protection from TD visa? ›
If You have any questions regarding this insurance or wish to cancel this coverage, please call 18663159069. You may return this Certificate for a full refund within 30 days of issue if You are not completely satisfied.
Why does balance work? ›
Your brain uses the messages it receives from your eyes; your ears (including the inner ear, which contains the vestibular system); and other body parts (e.g., muscles, joints, skin) to help you keep your balance. A balance disorder can negatively impact your life. For example, it can make you more likely to fall.
How does the daily balance method work? ›
The average daily balance method is a common way of calculating credit card interest charges. It is based on the card's outstanding balances on each day of the billing period. The average daily balance is multiplied by the card's daily periodic rate and by the number of days in the billing period.
How much should I spend if my credit limit is $1000? ›
The Consumer Financial Protection Bureau recommends keeping your credit utilization under 30%. If you have a card with a credit limit of $1,000, try to keep your balance below $300.
Can I cancel account balance protection? ›
Try it risk-free for 30 days – you can cancel anytime, and if you cancel within the first 30 days of your coverage becoming effective we'll refund any premiums collected.
Protected balance
There's a protected amount of £1,000 (from 1 November 2022) that can't be taken to pay off a debt. You can still use this amount. If you have several accounts with the same bank or building society, the protected amount of £1,000 applies to all the accounts together.
What is protected payment amount? ›
If your starting amount is more than the full State Pension amount, the extra amount is called your 'protected payment'. This is paid on top of your new State Pension when you claim and increases each year in line with inflation.
How does balance protection insurance work? ›
If you become critically ill or die, balance insurance may pay off your balance in full or up to a maximum amount. Credit card balance insurance benefits apply to the amount you owed on your card at the date of loss. This means the date of death, unemployment, total disability, or your critical illness diagnosis.
What type of credit protection would you recommend? ›
You do, however, face a lifelong risk of identity theft because your data and numbers are out there. Your best protection is freezing your credit, but layering on free monitoring could also help. Credit monitoring watches your credit reports and alerts you to changes in them.
Do you have to pay for credit card protection? ›
Terms may differ depending on the card issuer, but credit card protection insurance starts with enrolling in the program and paying a monthly fee, which is generally based on your balance—the higher the balance, the higher the fee. The monthly fee applies to coverage for the next billing cycle.
Is BalanceProtector max worth it? ›
Is paying a balance protector premium worth it? In most cases, it isn't. If you have a significant balance, 10% – 25% of it being protected isn't really going to be that much in the long run. Plus, the coverage is only extended to the balance before the event that caused the disability, death, or layoff.
How to get rid of balance protection rbc? ›
To cancel your BalanceProtector® Max coverage, please call the Insurer directly at 1-888-896-2766. Alternatively, you may send a written request by fax, e-mail or by regular mail at the address below. Please ensure you include your full name, signature, and your RBC Royal Bank credit card account number.
Does having no balance hurt your credit? ›
Having too many cards with a zero balance will not improve your credit score. In fact, it can actually hurt it. Credit agencies look for diversity in accounts, such as a mix of revolving and installment loans, to assess risk.
How does negative balance protection work? ›
Negative balance protection is a safeguard provided by many regulated brokers that ensures traders cannot lose more money than they have deposited in their accounts, preventing debt to the broker from trading losses.
