TORONTO – When you get a new credit card, increase your credit limit, or make other changes to a card you already own, you may be offered credit card balance insurance.
It is touted as a way to protect yourself, in case you lose your job or get sick. But it’s also considered an expensive type of insurance and you might not even need it.
âPeople should know that this is not cheap insurance, it can be quite expensive,â said Laurie Campbell, director of client financial well-being at Bromwich & Smith, a licensed insolvency trustee.
Balance insurance is offered by most credit card companies and many people think that if they get sick or unemployed it will pay off their balance, but it will usually only make the minimum monthly payments.
You may be offered credit card balance insurance for free for one to three months, but then you’ll have to pay it off and you might want to think twice before you say yes.
Campbell said people with high credit card balances should consider all of their options.
“Is it better to save your money or use it on your credit card balance than to pay for this type of insurance?” Another thing I’m saying, if you’re carrying a scale, look for ways to try and get rid of it, âCampbell said.
the the federal government reviewed the practice and determined that balance insurance is expensive, optional, has limitations and exclusions, and should be accepted by customers.
In fact, customers may already have similar coverage if they have life or disability insurance elsewhere, according to the Financial Consumer Agency of Canada.
Matthew Inglis, with Regina-based Mobile Advisors, conducted an insurance survey on credit card balance insurance with Canada’s major credit cards.
Some cards charge an insurance fee of $ 1.20 for every $ 100 owed on your credit card. If you had a $ 2,000 balance, you will need to pay $ 24 per month for insurance
Inglis said that “the cost is astronomical” and called it a very profitable product.
âCredit card credit insurance providers take approximately $ 700 million out of Canadians on an annual basis with a claims ratio of between $ 35 million and $ 70 million. So it’s a very dismal claims rate, âsaid Inglis.
In the event of death or serious illness, the entire balance may be refunded, but pre-existing conditions could exclude someone from benefits.
The best advice if you are paying for this type of insurance is to have a good understanding of how it works or to consider canceling it.
âA lot of people go years with this type of credit card insurance and pay hundreds and hundreds of dollars for it and never get to access it,â Campbell said.
You can find out if you are paying for this type of insurance by checking your credit card statement to see if any monthly premiums are written or you can call the number on the back of your card and ask customer service if you are signed up for it. .
Then you can decide whether or not this is the right insurance product for you.