Blog

Is Credit Card Balance Protection Insurance Worth It?

By Debt.ca on April 22, 2014 No Comments

If you have a credit card, chances are you’ve been offered balance protection insurance. The sales pitch seem appealing – credit card companies say they will be there for you in the event that you run into financial difficulties and are unable to pay your outstanding balance. At first glance balance protection insurance seems like a wise investment, but is it really all it claims to be? Let’s take a closer look.

What is Credit Card Balance Protection Insurance?

Repaying debt can be tough, especially when you run into financial difficulties. Whether you’ve been laid off from work, you become ill, or you suffer a critical illness, balance protection is supposed to be there to save the day. Similar to other forms of insurance, you’ll have to pay an insurance premium to be covered. Your insurance premium is based on your outstanding balance – the more you owe, the higher your premiums.

Here’s how TD Bank pitches its credit card balance insurance for TD credit cards: “TD Balance Protection Plus and TD Balance Protection Insurance are two credit protection insurance products designed to assist in managing your credit obligations on your TD Credit Card(s) in the event of a covered involuntary unemployment, loss of self-employment income, total disability, loss of life, dismemberment, critical illness or disability requiring hospitalization.”

What’s the Catch?

Just like other forms of insurance, credit card companies wouldn’t be selling balance protection insurance unless they turned a profit. If you’re considering getting balance protection insurance, it’s important to read the fine print, as all plans aren’t created equal. The events that are covered vary by credit cards companies; for example, you’ll have to fork over higher premiums for TD Balance Protection Plus if you want additional coverage for your spouse and for disability requiring hospitalization.

Not only do the events vary between credit card companies, the coverage varies, too. Some credit balance companies only cover your minimum payment, while others will pay off your entire balance. For example, if your credit card company only covers the minimum balance, you could be paying hundreds of dollars a year in insurance premiums for covering your minimum balance – 2 per cent or $20, whichever is greater – talk about an overpriced insurance policy!

Similar to mortgage insurance, balance protection insurance lacks the flexibility of disability or critical illness insurance. With the latter you can use your insurance payout as you see fit, but with balance protection insurance you’re limited to only covering your outstanding balance. Although credit card debt is one of the highest rate forms of debt, there are other forms of debt like payday loans that may make sense to pay off first.

Self-Insurance

In most cases you’re better self-insuring yourself against life’s curveballs. The easiest way to self-insure yourself is with adequate life insurance, disability insurance, and an emergency fund (three to six months’ living expenses). With those in place, you should have enough of a financial cushion to avoid balance protection insurance all together.

Debt.ca

Admin


10 Personal Finance Bloggers Share Their Best Money Advice

By Alyssa Davies on February 20, 2017

Every financial situation is unique and unlike others experiences, which is why every piece of information you can absorb during debt repayment will help. I know, I know, you’re tired of hearing the same old instruction from the same old places. So instead, we decided to see what others (who have been through similar circumstances)…

My Guide to a Frugal and Fun Winter

By Jordann Brown on February 7, 2017

When you’re in debt repayment mode, cutting down on your variable expenses is an important way to free up extra cash to pay off your debt quicker. I did it, and it was a key part of my debt repayment strategy. Cutting down on variable expenses is as simple as ditching any expense that you…

Valentine’s Day on a Budget

By Jordann Brown on January 31, 2017

When you’re on a budget, the most mundane holidays and events can cause financial distress. Does your friend have a birthday coming up? You’re probably already stressing about being able to afford the dinner she invited you to. The same concept applies to holidays, including Valentine’s Day. Listen, I understand. No one wants to be…

TFSA vs. RRSP: Where to Start Saving for Retirement

By Rubina Ahmed-Haq on January 23, 2017

After landing your first full time job the advice is often to start saving for retirement. Now it can be hard to convince a young person to put money away for an event that’s 40 years in the future. But what can be even more difficult is understanding where to save that hard earned cash….

No Comments Leave a Comment  

Leave a Comment

Free Savings Estimate

How much do you owe?

$100,000

$5,000
$100,000
Live Chat
Welcome to our Live Chat
Agents are not available at this time. Please leave a message. Thank you.
First Name
Last Name
Phone
Email
Postal Code
Debt Amount
 
PHP Live! powered