26 Feb, 2014
Savvy Tips

Balance Protection Insurance – Is It for You?

Insurance coverage in many cases is very important, but is it right for you? Balance protection insurance can make a big difference to you and your family in case of many unpredictable circumstances such as illness, death, loss of job, hospitalization, disability and many others.

 

Balance protection insurance is usually charged at a rate per $100 based on amount you charge (purchase) to the card – for example, $0.95 per $100 you purchase on the card. 

 

Having insurance is generally a good idea, but there are certain instances that you may be better off without it. It is very important for you to know that each credit card company and sometimes individual cards offer different types of insurance even though the name of the coverage may appear to be the same. As such, is very important that you take your time to understand what it is that you are covered for and how much it is going to cost you. Do not be shy to ask all the questions with the card issuer to make sure you are not wasting your money.

 

The great news with all creditor insurance policies in Canada is that you have mandatory free trial period to review all your policies in detail at home. So even if you take out balance protection insurance and then decide it is not for you, you have a window to cancel without any cost.

 

So is balance protection insurance for you? Consider this:

 

If You Keep Rolling Balances

If you keep balance on your credit cards, your premiums are going to be very high, since on a monthly basis the balance and rolling interest are considered a purchase. For example, let’s say that you are paying $0.95 per $100 for your insurance and you keep a monthly balance of $6,500 – your monthly premiums are going to be $61.75. The matter gets a bit more complex since the monthly premiums are carried at interest. As a result, insurance premiums increase since the overall balance is increasing as well.

 

If You Hold Other Personal Insurance Policies

Many individuals have personal insurance policies such as life insurance, disability and or critical illness offered through their employer or purchased separately. These polices usually offer a bigger amount of coverage and can extend to cover your financial obligations. Although it is true that one cannot have too much insurance coverage, it may be the case that you can get the necessary coverage through more affordable policies.

 

If You Pay Your Monthly Balance in Full

Paying balance in full has many benefits and this is how credit cards should ideally be used. If you do not carry monthly balances, the costs outweigh the benefits of balance protection insurance. You can save the monthly fees you would otherwise pay for the insurance and put it aside into your savings account.

 

If You are Self Employed

If you are self-employed and have a business credit card, insurance premium may be considered a business expense (consult your accountant) and, as such, a source of tax deduction for your business. In this case, there is a double advantage: added piece of mind for you and your family in case of an emergency, and savings on your taxes.

 

As you can see, there are different reasons why one should have balance protection insurance on their credit card and many reasons not to bother with it.  Take time to review and decide if this is a product for you.

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