Next time your credit card statement arrives, see if you’re paying for something called credit balance insurance. You may be shocked to discover how much it’s costing you.
Credit card companies have many names for this insurance, such as “Balance Protection” and “Credit Wise.” But the programs all work the same way. If you lose your job, the credit card company covers your minimum monthly payments. If you get sick or die, the insurer pays off your balance.
It sounds reassuring, especially in a recession. But thanks to high premiums the insurance is hardly worth it.
Rates for credit balance insurance are based on the size of your balance. The more money you owe, the higher your monthly premiums. The industry average is 95 cents for every $100 owed. If your credit card has a balance of $2,500, the insurance will cost you $23.75 a month. Over a year that adds up to $285.
“It’s really a terrible deal,” says Jim Bullock, a life insurance broker and educator in Toronto. Credit balance insurance costs more than regular forms of disability or life insurance for what you get in benefits. And there are usually a lengthy list of conditions. For instance, not all serious illnesses are covered, and some insurers will only pay if you lose your job through layoffs. If you’re fired, you can’t collect. Plus, some insurance plans won’t cover more than $10,000 of your total balance.
It’s not mandatory to have credit balance protection, but a lot of people sign up without realizing it. That includes Bullock, who only noticed a few months ago it was on his credit card. What to do if you find yourself in the same boat? Call your credit card company and cancel the insurance right away. Then ask for documentation that you signed up for the insurance in the first place. If the credit card company can’t show proof, ask for a refund on all the premiums that you’ve paid so far. “I know one person who got back nearly $2,000,” says Bullock. “She’d been paying for credit balance insurance for five years. She didn’t even know it.”