My wife’s credit card was reissued recently and she had to go through the usual activation process. She placed the 800-number call and was prepared to go through some automated menus to activate the card. To her surprise, an actual human came on the line to ask her if she wanted to buy balance insurance for a little less than $1 per $100 of balance.
My first thought upon hearing her story was that credit card balance insurance must be very profitable if the bank is willing to pay people to annoy customers while they activate their credit cards. Even though she declined the insurance, I decided to investigate further.
Check out this pdf document from the Financial Consumer Agency of Canada for useful credit card balance insurance information. It turns out that this nearly 1% insurance charge is applied every month!
The Financial Consumer Agency offers this understated warning: “Credit balance insurance is usually more expensive than regular forms of disability or life insurance.” The insurance charges from the big 5 Canadian banks compound out to between 9.4% and 11.9% per year!
The list of conditions that must be met to collect on the insurance contains the following ominous line: “your account must be in good standing.” I’m not sure how “good standing” is defined, but it seems like something that could be used to deny insurance coverage just when you need it. If you’re thinking of paying for credit card balance insurance, you should find out what “good standing” means.
Unless I get some evidence to the contrary, I’m going to lump credit card balance insurance into the same category as extended insurance coverage on consumer items: pure profit for the sellers. All such offers sound to me like “would you like to pay extra for that?”