Q: I have payment protection insurance on my credit cards and I'm wondering if this is necessary and if it is worth it. Should I keep or cancel it?
A: What you are referring to is "credit card balance protection insurance." It maintains the minimum payments on your credit cards if you lose your job or are medically disabled. It also may provide protection against accidental illness or death. As with all insurance policies, you need to understand the limitations and conditions of the coverage before deciding if its right for you.
Other points to consider before deciding to keep or cancel this coverage are:
- Existing life or disability insurance coverage you currently have in place;
- Salary-continuance benefits at your place of work;
- Emergency savings on hand to help you manage life events;
- Your plan to get out of debt.
Credit card balance insurance is expensive in comparison with other forms of insurance. The average cost is about $1 for every $100 you owe. For instance, with a $2,000 balance, the insurance would cost $20 a month.
If you lost your job and qualify for the coverage, the insurance only covers your minimum monthly payment. This is usually less than three per cent of the total balance owing. If you are carrying this insurance on more than one card, the fees can really add up.