We should be wary about some of the products sold by banks.
This week, I got a call from UOB Customer Service. Being a customer of their bank, this was not surprising.
I was expecting them to extend some personal loan or investment plan. This time it is a bit different.
The lady explain this new feature for my UOB One credit card.
How it works is that if I did not pay off my credit card bill on time on the due date, CreditSure will protect me in case something happens to me, this insurance will provide an amount equivalent to the amount of credit card debt owed.
If you go to UOB CreditSure page, you would be able to review the details.
The premiums for this plan is $0.55 on every $100 of credit card loan incurred and you get coverage up to $200,000.
The lady, upon hearing I was so interested in understanding the product wanted to sign me up, until I realize this plan is a good to have but for most probably recommended not to enroll.
Your Term Insurance Should Have Already Covered this Portion
CreditSure is a special form of Term insurance usually grouped as Payment Protection Insurance (PPI).
The benefactor are your dependents. This is to ensure they have this sum of money to clear this debt and not be burden by this.
However it is not so much different from your normal term insurance.
Your credit card debt should be small, relative to what your dependents need when you purchase a full fledge term insurance from an insurance company.
If you have computed your protection requirements for death coverage well, then you do not need an extra policy.
However, if your credit card debt is more than 12 times your monthly income, then this is sizable.
This CreditSure policy is a flexible way to ensure this debt is covered.
You have bigger problems if you incur a large credit card debt
Which brings us to the second point. We should be paying off our credit card debt when it is due monthly. If you do not then the focus of the issue is financial prudence.
Incurring credit card debt looks like a bigger problem then whether to get this policy.
Your main focus then is to pay down the credit card debt.
The Premiums do not look Cheap
CreditSure is a mixture of term protection for death, TPD and personal accident.
The lady have computed the cost of insuring for the assured amount. it is 0.55%.
How does this compare to the cost of traditional term insurance?
The above table filters for term insurance protection that you can purchase off DIYInsurance.com.
The premiums for $500,000 coverage range from $519/yr to $836/yr.
The cost of insuring therefore range from 0.1% to 0.16%.
If I read it correctly, the cost is even more if you roll over your debt on a monthly basis (now you see why that is a bigger problem). If you roll over for 6 months, your cost might become 3.33%!
These policy are not apples to apples comparison as the amount of debt people incur, you won’t spend $120/yr in insurance premium to insure an additional $100,000 in coverage.
Again, you should be clearing that debt!
CreditSure will be a lucrative insurance for Prudential
More and more people are incurring credit card debts, so there is so much potential here.
And since it is sold as some form of new feature and the example used shows that the total premium paid is negligible ($0.55) people will sign up for it since the process is over the phone.
I don’t like cost leakages in the services that I engage in so I was adamant I do not want to signed up.
When I presented my case to her , she explained that we do not know what the future holds and this is what the plan is for.
That is correct. However, this dunno what the future holds is often used as a justification to purchase any kind of insurance.
With most of our level of credit card debt, we can self insure and offset this debt on our own.
Monday 3rd of April 2017
Hi, I think in Singapore, family members do not inherit credit card debts unless it's a joint account. It's paid off from the deceased estate and if the deceased is insolvent, credit card debts will be written off.
Tuesday 4th of April 2017
Hi Christopher, thanks for enlightening me. In this case the deceased needs to have an estate in the first.
"Once a person passes away, all assets will be frozen and moved into probate.
A probate is a court order under which a will left behind by a deceased is executed (i.e. liabilities settled and remaining assets distributed). A probate is usually applied by a next of kin (or a lawyer authorized by a next of kin) of the deceased.
Under the probate, the executor of the will be empowered to settle the outstanding debts of the deceased.
In parallel, financial institutions (such as banks) would usually be notified by the probate court to make any caveats on the estate of the deceased. Upon receiving notice that a customer has passed away, organizations such as utility companies will also generally make claims as necessary on the deceased’s estate.
When the court is satisfied all debts have been settled and the estate duty paid, the remaining assets would be allowed to be distributed to beneficiaries under the will."
This would still mean that the beneficiaries are deprived of money they could use in their daily lives from my interpretation. If you did not take care of this aspect for your family, they will inherit less assets.
Hope i am correct on this.