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Why Credit Card Balance Protection Insurance Isn’t Worth It

By Julie Jaggernath and Kevin Sun

While getting balance protection insurance for credit cards can help you be prepared for hard times, it’s usually not worth it. Not only are you paying too much for too little, but there’s a much better way to keep yourself financially stable in an emergency. Here’s what you should know before getting credit card balance protection insurance:

Credit Card Balance Protection Insurance Isn’t Credit Card Loss Insurance

Balance Protection Insurance for Credit CardsBalance protection insurance, which can have other names like payment protection insurance and balance protector premium, is completely different from credit card loss insurance. Loss insurance protects you from theft and fraud – something that your credit card probably already does without you having to pay for it.

Balance protection may help pay your credit card when you lose your job, have a medical emergency, or pass away. It doesn’t give you more money, but just helps make your credit card minimum payments. What gets covered and by how much can vary from card to card, so make sure you know exactly what you’re paying for by reading the terms and conditions provided.

The Costs of Balance Protection Insurance Are Not Worth Its Coverage

Credit card balance protection works in addition to unemployment, health, and life insurance. Which begs the question: if you have all these already, then why do you need balance protection just for what you owe on your credit card? You might think there’s a cost advantage, but this insurance is expensive at around $1 a month for every $100 spent. For example, if you spend $1500 on your credit card in August and $2300 in September, then you’ll pay about $15 for August’s insurance and $23 for September’s. These amounts will be added to your overall balance owing, which can make them easy to forget or ignore.

1% is a lot to be paying every month for something you might never need – and unlike overdraft protection, it keeps getting charged whether you're using it or not. What’s worse is that when you do need it, it’s not intended to cover your whole balance owing. It will instead just make the minimum payments, which means you’ll still be saddled with the debt.

Check if You Have Balance Protection Insurance and Decide If You Need to Cancel 

Some Canadians have reported being signed up and charged for balance protection without their consent. If you’re not sure if this happened to you, carefully search your credit card statements for charges you don’t recognize – if it has premium in its name, then it could be balance protection insurance.

Contact your credit card company if you find it and ask them to cancel your coverage if you don’t want or need it. You may need to insist strongly that the customer service rep you’re speaking with follows through – and provides you with written confirmation that your coverage has been cancelled. If they can’t provide you with proof that you signed up for it, insist that they refund all of your premiums to you. If they refuse, follow their complaint resolution process. Keep notes about whom you spoke with, when (date and time), and what was discussed. If you’re not able to resolve the situation with their ombudsperson, make a complaint to Canada’s Financial Consumer Agency.

You Can Make Your Own Insurance by Starting an Emergency Fund

The point of credit card balance protection insurance, like all insurances, is to make a plan in your good times so that you have enough in bad times. However, the cost and restrictions of credit card insurance makes it a bad deal for most people. A better way to use that money is to save it yourself in an emergency fund.

Instead of spending an extra 1% of your credit card purchases on balance protection insurance, save that extra 1% – and whatever else you can spare – in your savings account. This is money that only you control, and you can use it not just for your credit card, but any kind of emergency. Watch the fund grow and sleep well knowing that it will definitely be there for you if you ever need it.

Where to Find Money to Save for an Emergency Fund

Get Help with Understanding Credit Card Balance Protection Insurance

Rather than buying expensive credit card balance protection insurance, a much better way to ensure that you’ll be taken care of if something happens is to save up your own emergency fund. If you still have questions about insurance, want more practical personal finance advice, or are concerned about credit card debt or other kinds of debt, then contact a non-profit credit counselling organization. A professional credit counsellor in your area would be happy to help you reach your financial goals and ensure you’re prepared for hard times so that you can enjoy the good ones.

Comments

I just discovered that my credit card company has been charging me for balance protection insurance which I didn't sign up for. I'm on the phone with them now. I will make sure they refund me for this crap I didn't sign up for. This post opened my eyes. Thank you so much for all you do.

It's great that you caught that, Kemi. We're happy to have helped!

I did not notice these charges either and assumed they were just interest. But I was laid off from work for 6 months until November. Would I be able to make a claim still?

If you've been paying for insurance, take a look at your card's insurance policy, see exactly what coverage you have, and what the process is for making a claim. You should be able to find all this information on your card's website or on the insurance company's website. If you can't find it, just call your credit card company and request the information. Have a close look at this information and see what you're eligible for.

I had gotten a Walmart reward card.They ve been charging for accident and balance protection plan that I never signed up for and when I realized and called them the first customer service that I spoke to me was very rude,and she off the phone on me and I called back next time I spoke to another associate she said that the policy has been canceled and ask her why they ve refund me yet and she stopped speaking but I could hear her breathe and later the line went off.What do I do?I need that refund.

If they've cancelled your insurance, you may need to wait for a statement cycle to see a credit show up on your statement. If they allow online access to your card's transaction history, you may be able to login and have a look there. If after 30 days you haven't seen a credit to your credit card account, you should contact them again and find out when you can expect them to credit you back.

Is it worth it to sign up for a personal line of credit with life insurance? The life insurance basically pays down your balance owing (if you have any) in the case of death. Apparently it costs $0.13 per $1000 borrowed monthly so if I borrowed $10k from the PLOC I would pay a max of $1.30 per month (which would be max $15 per month). I don't plan on using the PLOC any time soon so the bank agent says it's good to lock in the low rate now at my age since the rate is age-based. Opinions?

We’re not life insurance experts, but here are our thoughts. Life insurance on a single credit product, like a personal line of credit, needs to be considered as part of your overall life insurance coverage. Watching that you're not over-insured is as important as not being under-insured. Just like with any insurance policy, it's also important to review the details of the policy yourself to confirm what your lender has told you and to understand any limits with the coverage (e.g. under which circumstances it would not pay out). When you're young and the premium is as low as you indicate, rates do typically stay locked in - but only for that exact PLOC. If you apply to raise the limit, change whether it's secured or unsecured, move it from one branch (or financial institution) to another, or add a co-borrower you will need to sign new loan documents. There are new insurance documents to sign at that point too and your premium will then be based on your age at that time. That said, if you're young and don't have (enough) other life insurance (e.g. a personal policy or as part of an extended benefit through your work/union), $0.13 per $1,000 borrowed is not a huge cost and could save your family the trouble of dealing with any balance owing should anything happen to you (it would need to be paid from your estate, e.g. sell a car or cash out RRSPs - they wouldn't be responsible for coming up with the cash if the PLOC is only in your name). Just be sure to let them know that you do have this coverage so that they are aware. Life insurance is meant for those emergencies in life that are sometimes the hardest to talk about with loved one, but it makes it so much easier on those left behind when we do plan ahead and talk about our plans.