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What Is Balance Protection?

Balance protection is a service offered with a checking account to prevent a draft from bouncing due to insufficient funds.
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  • Written By: B. Miller
  • Edited By: Andrew Jones
  • Last Modified Date: 13 July 2014
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Balance protection, also referred to as overdraft protection, is a service that many banks offer to their customers in order to prevent bounced checks or withdrawals leading to insufficient funds in an account. A separate type of balance protection is a type of insurance that many credit card companies offer, for which the customer will pay a monthly fee. Then, if the credit card holder loses his or her job, or for any reason cannot make the minimum monthly payment on the credit card, the protection insurance will kick in and minimum payments will continue to be made for a specified period of time. This prevents an account from becoming late or going to collections.

Both types of balance protection can be beneficial. A bank that offers balance protection on a checking account will generally cover checks that are written up to a certain amount, without returning the check to the addressee. The person who wrote the check may still be responsible for paying overdraft fees to the bank, as well as the original amount of the check, but at least the check will be covered. People who abuse this privilege may find that their bank will no longer offer this type of balance protection.

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Balance protection insurance on a credit card may or may not be beneficial to the credit card holder. If one pays off the balance on the credit card every month, for example, then this type of insurance may not be necessary, since it will just add additional fees onto the balance. On the other hand, people with large credit card balances or tenuous employment situations may find this type of insurance to be very valuable. It is necessary to read any agreements carefully with the credit card company; often, the cost required for this type of protection can vary from month to month as the credit card balance changes.

Keep in mind that both types of balance protection are not intended to be used regularly, or to encourage irresponsible behavior with checking accounts or credit cards. They are only meant to be used for back up in an emergency, to prevent financial mistakes from negatively impacting one's credit. It is important to carefully consider whether or not this type of additional protection is necessary. Some people build their own balance protection into a checking account simply by "hiding" money in the account; for instance, one might keep an extra $500 US Dollars in a checking account without writing it in the checkbook.

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wander
Post 3

Do you think it is worthwhile to get a balance protection insurance that also includes credit card travel insurance?

I travel extensively and it would be nice to not have to worry about my transactions when I am abroad and be covered for things like lost baggage and flight delays. I find that you never know what is going to happen with airlines so I think it is best to be prepared.

Right now I pay for separate travel insurance which can really add up over the year. I think if I could find the right credit card related insurance it might be the solution to my problems.

lonelygod
Post 2

@manykitties2 - You should really read some of the consumer reports about credit card life insurance and balance protection insurance. The truth is that if you don't carry a balance the insurance is useless to you, and in fact, even for those that do need to make a claim the insurance can be a real pain to cash in. Basically most balance protector insurance is just a ploy to suck more money out of customers.

In my experience I have found that the fees for the insurance can get far to expensive if you have a high balance, and there is very little return on the investment. If you do get insurance, read the fine print very carefully.

manykitties2
Post 1

Do you think it is worthwhile to apply for credit card purchase protection if you don't usually carry a balance on your card?

I have a Mastercard credit card and I am constantly being offered a balance protection insurance for a monthly fee. While I can see the benefit of having this product to make payments if you lose your job or get sick, what happens to those of us that just don't carry a balance?

My bank is insisting that the insurance is a good investment as it will also cover any theft. I was under the impression though that my credit card was already protected against fraudulent purchases.

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