One of the worst financial practices that’s still super common is selling creditor insurance or balance protection to people when they’re getting some form of debt, like a credit card, line of credit or mortgage.
Often these products are sold during the application process and with no real discussion about the details or possible alternatives.
There’s a reason for that. Well, two.
1. There are better alternatives
2. They don’t want you digging into the details
On the first point, it’s almost always cheaper to just buy your own term policy instead. I’ve helped many clients get the exact same coverage (or more) for a fraction of the cost. I’ve seen cases where most of the monthly payment they’re making is going toward balance protection instead of paying it off. It’s brutal.
And on the second point, if you dig into the details, these products are usually post-claim underwritten, which means that they only do the work to figure out whether you qualify AFTER you make a claim. So you might pay all this money for protection over decades and only come to learn that once you actually need that protection that you never even qualified for it in the first place! It’s unbelievable.
Luckily, it’s also easy to avoid.
If you’re applying for a credit card, line of credit, or mortgage in the future, you should almost never get the insurance or protection they try to sell you at the time.
Instead, you should look at the other options available and go with what’s in your best interest. Typically, that’s a term policy you own.
And if you already have a credit card, line of credit, or mortgage, you should go look into the details and see if you’re currently paying for creditor insurance or balance protection or some other similar fee.
Again, often you can cancel that protection and get your own policy instead, save a bunch of money, and know for sure that you’re actually protected.
Remember, products like balance protection and creditor insurance are designed to protect the lender (the bank). Term insurance is designed to protect the borrower (you!).
If you need help with any of the details, or figuring out what policy makes the most sense for you, send me a message. I know the fine print can be confusing and it drives me nuts when people try to do the right thing but end up paying for terrible inferior products that don’t even do what they’re supposed to.