When you are borrowing money from a financial institution a common question is, “Would you like insurance protection?” For a monthly fee you can purchase ‘peace of mind’ – in the event of illness, job loss, or an accident, your loan/credit card payments may be paid on your behalf through the insurance company. Is it really that simple?
The short answer is: it’s never really that simple.
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.
Insurance is a hot topic once again. Hot for all of the wrong reasons. Many people have heard about a number of claims under travel insurance policies that have recently been denied by Canadian banks. I say many people because I couldn’t find the story quickly on the internet. It didn’t seem to get a lot of coverage in the local newspapers either. It’s a good thing I watch the news on television.
One case involves the CIBC where a 69 year old senior bought travel insurance and paid an extra $100 premium to make sure her insurance would cover her high blood pressure – and after getting sick abroad and then filing her claim, the bank denied her claim.
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.
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