Little payoff with credit insurance

August, 2004 – Recent articles in both the Toronto Star and The Globe and Mail question the value of credit – or balance – insurance. Offered by the banks and some of the major retailers, this type of coverage insures the unpaid balance on your credit card against circumstances that could prevent you from paying it off, such as serious illness or death.

Basically, the coverage pays off the minimum payment on your card statement until you reach a maximum benefit of $5,000 to $20,000, or you return to work (a 24-month limit may apply).

But as Globe and Mail columnist Rob Carrick points out, the minimum payment could represent a very small portion of your entire bill, and you will continue to rack up interest charges on the outstanding balance. Add to that the cost of the insurance, which is based on the actual monthly balance, and you could have extra charges as high as $35 to $65 in one month alone if you had a balance of, say, $5,000 on your card. To insure a continuing balance of $5,000 on your credit card, you could end up paying $400 to $700 or more to your card issuer over a 12-month period – money that would be better spent paying down your card balance.

Toronto Star columnist James Daw notes that there are usually limits on the benefits paid. For example, one bank’s contract warns that there will be no coverage if the policyholder dies of a pre-existing condition within the first 12 months of buying a policy.

A better bet would be to carry a reasonable amount of life insurance and/or disability or critical illness insurance.

– Sally Praskey, editor,