Credit card security shopping
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Dubai: When you sign up for a new credit card, you will most likely be encouraged by the bank’s salesman to take out a ‘credit shield’ – a type of insurance that protects cardholders against an unforeseen event.

But does ‘credit shield’ protect you against credit card fraud? Does it cover your credit card bills if you default due to financial hardship? Does it insure you with an income if you lose your job due to unforeseen circumstances? Let’s delve into how exactly this feature benefits you…

How does a ‘credit shield’ come of use?
Credit shield is an insurance feature offered by most credit cards. It’s meant to provide financial security to your family and you in case of an unfortunate event relating to loss of life, permanent total disability, critical illness, or loss of employment.

One of the most sought-after benefits of credit shield is the involuntary loss of employment cover (ILOE). The credit shield covers the repayment of your outstanding credit card balance in case of unexpected and involuntary unemployment.

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What ‘credit shield’ can, cannot do for you

“Credit shield continues to be one of the many banking concepts that’s shrouded in a bit of mystery. But the only thing keeping cardholders from realising its true potential is a lack of knowledge about how it works,” explained Abbud Sharif, a banking industry analyst based in Dubai.

“Even though the concept of 'credit shield' is often surrounded by many misconceptions, one needs to find out how the credit card feature can benefit you and whether it is worth shelling out a few hundred dirhams for.”

With the ‘credit shield’ feature offered by several banks, the lump-sum death and disability benefit can range anywhere between Dh50,000 to Dh300,000, with this amount going towards repaying your unpaid credit card debt.

What’s excluded in credit shield’s job loss cover?

However, when it comes to the job loss coverage benefit, it can help repay 10 to 15 per cent of your monthly outstanding credit card balance for about six to twelve months of involuntary unemployment, explained Abu Dhabi-based credit advisor Essam Kabeelali.

Since potential benefits vary from one bank or card issuer to another, the premiums may vary too. “Cardholders must be aware of monthly charges and whether the benefits justify the additional expense,” he added

“One of the benefits of having ‘credit shield’ protection is the insurance coverage it offers to repay your outstanding credit card balance in case of unforeseen and involuntary unemployment.

“You can claim against your credit shield’s unforeseen and involuntary unemployment loss cover benefits if you’re laid off or made redundant unexpectedly and involuntarily. But dismissal due to underperformance, misconduct, and such, will not be covered.”

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Also, a credit shield’s features vary from one credit card to another. For example, one firm may only offer to cover 10 per cent of your outstanding card balance for an agreed-upon period. On the other hand, another may cover your utility bill payments during unemployment, too.

Additionally, the job loss coverage you are offered when opting for a ‘credit shield’ is subject to a waiting period of around 30 to 90 days from the date you enrol for credit shield, so any claim made during the waiting period is nullified or considered void.

What if your credit shield claim gets denied?

Usually when the card provider denies your claim, it is due to not meeting all the conditions specified in the credit shield contract or the claim falls under the limitations listed out, which make you ineligible to qualify for the benefits.

“For exact details of the benefits you’re eligible for, read through the credit shield terms and conditions under your credit card agreement. Request the bank for a copy of the schedule of benefits under the credit shield coverage you have signed up for,” said Kabeelali.

“If you still feel that the claim has been denied unfairly, you can lodge a formal complaint with the Consumer Protection Division at the Central Bank of the UAE, which works to protect consumers from unfair banking practices, or ask a legal expert to review your employment and credit contract.”

Verdict: Is credit shield a must-have?

Credit shield is not a must-have for all. It can at times be a waste of money, for instance, if you already enjoy similar benefits under a different insurance plan or if you’re self-employed, making the job loss coverage perk redundant.

“It’s also vital to mention that not all credit shield products are created the same, like some credit shields get you additional benefits like cash benefits and temporary disability coverage, while many others do not,” explained Sharif.

“Eventually, you need to be fully aware of what you’re signing up for. Your credit shield could end up being left untapped if you have no clue of how to benefit from it. On the employment front, while you're on the lookout for a full-time job, you could also look for part-time work to start earning.”

Bottom line? While the credit card feature can only help you transition from a dire or tight cash crunch and help you find a more stable financial footing and get better equipped to pay down your debts during the crises, it cannot get you out of debts completely.

And like most credit card benefits, this added level of security too comes at a cost – which can prove its worth only if you can use the tool for the above-mentioned financial purposes it serves, and not to put a relatively small dent to unsustainably high levels of debts.