Credit card protection insurance is another case of paying too much in premiums for very little protection. Many people signing up for this expect that it will pay off their credit card if they lose their job or become too sick to work.
The truth about credit card protection insurance is that it will only pay the minimum payments, and often only for up to one year. As far as the coverage for illness, you will not be covered if you already have the condition when you sign up. The cost for this insurance can be as high as 1.5% of your credit card balance.
This past February, CBC’s Marketplace conducted a poll through EKOS. These are some of the interesting findings:
- 23% with credit balance insurance say they weren’t given full disclosure when it was sold to them.
- 22% with the insurance say it was never explained the policy was optional.
- 51% with the insurance say it was never explained that policy would not pay their entire balance if they lost their job or fell ill.
- 56% with the insurance said it was never explained the insurance wouldn’t cover pre-existing medical problems
While it is a good idea to make sure your minimum payments are covered for times when you’re unable to pay them, you would likely come out ahead by using the money paid on premiums to fund a emergency savings fund.
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Many of the companies named in the Marketplace report are underwritten by American Bankers operating as Assurant Solutions in Canada. They underwrite credit insurance for: GE Money, HBC, TD, Canadian Tire, RBC, MBNA, Presidents Choice, American Express and many others.
Essentially the coverage for all of these insurance packages is often similar yet the cost per $100 for coverage ranges widely; not always an identical value to the client. Also, you should be licensed to sell insurance; few of their sales agents are not licensed.
Credit insurance is a major money centre for financial institutions and people depend on the money they’ve provisioned for in the event of a claim. After the recent financial meltdown, we know banks are not great at regulating themselves. Certainly, the banks have protected themselves, who is protecting us?