What is debt insurance? Debt insurance is never called debt insurance, it’s called mortgage insurance, balance protection insurance, and other names. Essentially this insurance is to pay back your creditors in the event of your death or life-threatening injury or illness, depending on the specific coverage. Debt insurance has more benefit for your creditors than it does for you, and here’s why: it’s expensive, the monthly premiums do not go down although the coverage does as the debt decreases over time, and it pays only that creditor for that specific debt. Of course it benefits you too if that is your only insurance option, but it isn’t.
Many times when thinking about our budget, and how much we have left-over for spending on our wants, we forget about the irregular expenses or unexpected costs that pop up. That is why having a detailed budget (with an appropriately sized miscellaneous category) along with an emergency savings fund is essential to keeping us out of debt. Let’s review some of the commonly forgotten costs that can lead to financial hot water:
“Do you not understand she’s dead? What part of dead don’t you understand?” West said. “There’s no one to pay this bill.”
What if you were nervous to open up your mailbox because you would be reminded of your deceased child?
Personally, I can’t even imagine this scenario; however, a parent featured in a recent news story was going through this every day when Bell Canada was attempting to collect a debt owed by her deceased daughter. Sadly, Christine West of Ontario lost her daughter, Katie, to suicide in December of 2011. Katie’s cell phone with Bell Canada had an outstanding balance of approximately $215, and for three years the company attempted to collect it, even though she had passed away and Christine had provided proof Katie’s death certificate to Bell (numerous times).
When people are struggling with credit card debt, lines of credit and other unsecured debt, they have a few options available to help them. One popular choice is to refinance your home (if you own it with enough equity) which means to increase your mortgage and use that extra money to pay off your credit cards and unsecured debt. That way the unsecured debt you had will now be part of your mortgage, a secured debt. The benefit to doing this is saving money on interest, thus making it more affordable to repay. Mortgages these days have very low interest rates, thanks in part to being a less risky loan for the banks because they are secured by the home. If you cannot make your payments, the bank simply repossesses your home to recover its money. In contrast, credit cards can have much higher interest rates and make repayment of the debt very difficult.
Last week, Vancity (one of the top credit unions in BC) introduced a new product called the Vancity Fair and Fast Loan.
Here’s the good news: it’s a lot cheaper than payday loans. As reported by Kevin Griffin in the Vancouver Sun, “If a credit union member borrows $300 for minimum term of two months and pays it off in two weeks, it would cost $2.20, a 19 per cent annual percentage rate.” Whereas a payday loan from the Cash Store for $300 (with a 14 day term) would cost $69, which is 23% interest on the principal and equates to an annual interest rate of 599.64%.
And here’s the bad news: