December 18, 2012

“Peace of Mind” or “Waste of Money”?

Are you aware whether you have balance protection on your credit card or not? Often when applying for a credit card, the applicant is not asked whether he or she wants the protection, it is added automatically and assumed as wanted unless the applicant asks to terminate it. You may think the protection is mandatory, or even part of the interest charge, but that’s not so.

Balance protection insurance is like other insurance in that it’s benefit coverage comes with eligibility requirements, exclusions and conditions. However, unlike other insurance, you are not applying for it to see if you qualify or approve its coverage, you are offered it automatically and then it is up to you to find out if you qualify or if you require the coverage. Therefore if you do not take any action, you will be paying for it even if you don’t qualify, and even if you don’t really need it or want it.

Do you qualify? You could be paying the monthly premium even if you don’t qualify for coverage. Read the fine print in your certificate of insurance, sent to you after initiating the account.

For example, let’s take a look at TD Canada Trust Credit Card Balance Protection Insurance, provided through Assurant Solutions (aka American Bankers Insurance Company of Florida)

Qualification

• age restriction 18-65 at time of enrollment
• at age 66 only accidental death is covered and all other coverage is terminated
• a Canadian resident
• the primary Account holder of the applicable TD credit card
• employment to qualify for job loss protection: working for salary or wages of 25 hours or more per week (not student, part-time or self-employed)

Benefit Coverage
1. Covers minimum payments in the event of involuntary job loss or total disability

• the greater of 3% balance monthly or minimum payment, for up to $10k or 24 months maximum
• the payment remains the same after the second month, meanwhile interest charges on the balance and insurance premiums continue (unless you cancel the insurance, and benefit payouts will continue)

2. Pays the balance in the event of death, dismemberment or critical illness

• the balance up to a maximum benefit of $10k (even if you have multiple accounts that you pay protection on, your maximum payout from the same insurance company will still be $10k)
• specific circumstances of death and conditions of illness apply, as well as time frame restrictions from time of enrollment
  • for example, cancer must be considered life-threatening and must not have any symptoms or medical consultation prior to diagnosis within 90 days of insurance enrollment
• not qualified for critical illness coverage if you have ever been previously diagnosed with the same type of Critical Illness (ie cancer, stroke or heart attack)
• dismemberment coverage only applies to the loss of 2 (or more) limbs/eyes. 1 limb is not enough, and hands and feet don’t count either, it must be above the ankle or wrist.

Cost
The cost for TD’s regular plan is $0.89 per $100 balance, plus tax, calculated daily. TD’s Plus plan is $1.20, and other plans may be as high as $1.50 per $100 balance. So even if you pay your balance on time every month, there will still be a charge for the insurance premium on the daily balances.

Conclusion
Since you need balance protection for each separate card, it may be more economical and beneficial to have one insurance plan to cover all debts.

Also be aware that if you have other insurance coverage, your balance protection insurance may not qualify for payout. If your Credit card insurance is listed as “supplementary”, it will be paid out secondary to other home, auto or medical coverage you may already have (meaning all other sources of insurance, recovery or indemnity must be exhausted before credit card insurance pays any benefits to you).

It is also interesting that balance protection insurance is a very large source of revenue for banks and creditors. Perhaps the “protection” is more about protecting the bank’s money than yours? Check your statement, read the fine print, compare your insurance alternatives, and decide for yourself.