Insuring yourself against credit card debt

Death and disability are among the risks typical working people face from day to day. In the Philippines, where not even 20% of the population have some form of insurance, the misfortune of losing a breadwinner can be devastating.

What more if the said breadwinner happens to leave behind debt? It becomes the burden of the family to pay off inherited obligations or risk losing face or social status along with foreclosed property and other assets.

Outstanding credit card balances are among potential obligations that can burden surviving family members. Fortunately, there exists a facility that protects credit cardholders and their families from having to pay the remaining balance on a card, in case of death or disability.

Credit standing

Citibank pioneered this concept with the introduction in 1997 of CreditGuard. The cardholder who enrolls for CreditGuard pays 36 centavos for every P100 of their monthly outstanding balance or an equivalent of P36 for an obligation of P10,000. PayLite transactions, including unbilled installments, will also be covered and made part of the computation. No outstanding balance means no premiums charged.

In return, CreditGuard will pay for the entire outstanding balance in case the cardholder dies or is permanently disabled, and the minimum payment due monthly for six months in case the cardholder is temporarily disabled or unable to work.

Beyond the issue of money, the product is able to help cardholders and their families protect their reputation, preserve their lifestyle and maintain their social status, especially during the difficult period immediately following death or disability.

"If you are blacklisted by a credit card company, it becomes very difficult to regain your standing in the community. You won’t be able to get a loan or any credit," said Leo Gaveles, president of Citicorp Financial Services & Insurance Brokerage Phils., Inc., the company which markets CreditGuard. "Elsewhere in Asia such as Korea and Taiwan, it even becomes difficult to find a job because people do not trust you anymore."

Working class must

Gaveles recommends credit insurance for the working class. "The rich have enough money and they are most likely covered in some way, either with a life insurance or pension plan. But those who have a credit limit of, say, P25,000 to P50,000, earn P15,000 to P20,000 monthly and have children in school. They are really exposed and need the protection," he said.

On the one hand, the majority of credit cardholders just earn enough to cover basic needs like rent or mortgage, transportation, food and the children’s education. They would normally not be able to budget for simple life insurance coverage, which is another way to protect themselves against the risk of death or disability.

On the other hand, credit insurance like CreditGuard comes out cheap because it is not based on age, gender or state of health but solely on the outstanding balance of a cardholder from month to month.

As the financial market in the country matures and cardholders become more sophisticated and better informed, credit insurance should take its place among standard credit card features. That can only be welcome news to the ever-struggling working class.