Credit Card Life Insurance: there are entities that charge up to 10 times more expensive.
Regardless of whether a purchase is financed or not with a card, the life insurance charge is paid by customers. Although in percentage terms it would seem that its small amount has no influence, we must not forget that in certain cases it can be significant. Recommendations not to overpay.
In previous notes the financing rates and the costs that must be faced to renew the credit card were analyzed.
When verifying the true cost of owning this product, other concepts should also be considered.
One of them is the life insurance that the entity charges on the financed balances.
When a card purchase is made (whether in installments or not) the credit card holder must pay a percentage on the amount of the purchase (beyond financing it or not) for life insurance. For example, I go to the mall on February 15 and buy an LCD for $ 5,000. While I don’t want to finance the purchase of the TV in installments, at the time of purchase someone is paying for the TV to the appliance company (usually the bank).
That is to say that although I do not plan to “finance” the purchase, after all I am doing it for a few days until I have to pay the bank the balance that comes in the card summary. Although it does not finance, on the balance to be paid that comes in the summary (the $ 5,000 of the television) a percentage of life insurance is applied that generally goes between 0.10% and 1.00% (if we take the $ 5,000, the life insurance charge that additionally would have to be paid would be between $ 5 and $ 50, respectively), depending on the insurance company with which the bank works. Then, if we go out into the street and a car steps on us, the financial institution, as it has insurance, finally charges the $ 5,000 that it gave us for the television.
It should be noted that when requesting a credit card, financial institutions must not only inform the client about the percentages for the life insurance charge but must also offer two insurance companies for the client to opt for one of they.
Considering the total universe of cards released, the average cost of life insurance as of December 10 amounts to 0.34%. It should be noted that, depending on the type of card, there are entities that do not charge anything for this concept. The maximum cost relieved reaches 1%.
In conclusion, there are financial institutions that charge life insurance charges up to ten times higher than those that less charge.
One of the issues that must be taken into account is that there are entities that apply the percentage of life insurance on the total debt (purchases, cash advances, financed balance, interest, fees – either those recorded in the summary as pending-). On the other hand, there are entities that only charge it on the outstanding installments.
As mentioned at the beginning, another important point is that at the time of signing the credit card contract, the financial institution must offer the possibility of choosing between different insurance companies (Annex III Resolution 9/2004 of the Secretariat of Technical Coordination of the Ministry of Economy and Production of the Nation), with which the client would have the possibility to exercise his option being able to choose “obviously” the cheapest.