Credit card balance insurance
What to know about credit card balance insurance
Credit card balance insurance provides coverage that may help to pay down, or pay off your balance if you:
- lose your job
- participate in a legal strike or walk out
- are hospitalized
- become injured or disabled
- become critically ill
- die
Credit card balance insurance is also known as:
- balance insurance
- balance protection insurance
Some credit card balance insurance products also provide certain benefits for the credit card holder’s spouse.
Someone may offer you credit card balance insurance when you:
- apply for a credit card
- activate your card
- make changes to your credit card, like a credit limit increase
Credit card balance insurance is optional insurance and is a separate product from your credit card. You don’t need to sign up for credit card balance insurance to get approval for a credit card.
Credit card balance insurance may not be right for you if you have coverage from another insurance policy. Compare the coverage and cost with other insurance options. They may already provide you with similar coverage but at a different cost. For example, a term life insurance policy, disability insurance policy or your employer’s insurance plan.
Make sure the insurance meets your needs in terms of protection. If your lender is a federally regulated bank, they must offer and sell you products and services that are appropriate for you. They must base this offer on your circumstances and financial needs. They also must tell you if they’ve assessed that a product or service isn’t appropriate for you.
Take the time to describe your financial situation to ensure you get the right product. Don't hesitate to ask questions and make sure you understand the insurance product you have or want.
You may not need credit card balance insurance if you:
- have enough savings to pay your balance
- pay your balance in full each month
Know your rights before you sign up for credit card balance insurance.
Find out if you have credit card balance insurance
You must agree to sign up for credit card balance insurance before someone can charge you for it. This means giving your express consent.
To find out if you have credit card balance insurance:
- check your credit card statement for premium charges
- check if your credit card statement lists balance insurance under optional products
- check your credit agreement for any optional products
- contact the credit card issuer to ask if you have credit card balance insurance
- check for a certificate of insurance that came:
- with your credit agreement, or
- separately after you received your credit card
Credit card balance insurance is different from non-optional insurance that might be features of your credit card. For example, for purchases, extended warranties, auto collision, or travel insurance.
Learn more about giving your express consent for optional products and services.
Signing up for credit card balance insurance
You can apply and sign up for credit card balance insurance in person, over the phone or online. You can get it from the same business where you got your credit card.
Issuers include:
- banks
- credit unions
- caisses populaires
- stores and other companies that offer credit cards
You don’t need to decide to add credit card balance insurance when applying or activating your credit card. You can add it at any time. Take your time to decide if it’s the right coverage for you.
You may want to have credit card balance insurance on more than one credit card. In that case, you must sign up for separate insurance coverage for each card.
You may get credit card balance insurance from a federally regulated financial institution, like a bank. In that case, they must give you certain information before and after the policy takes effect. They must explain the product to you in a way that is clear, simple and not misleading.
Like other types of credit and loan insurance, credit card balance insurance is not sold by a licensed insurance representative. This means that the person selling you balance insurance won’t do a full analysis of your insurance needs and financial circumstances.
Understand the terms and conditions of credit card balance insurance
The terms and conditions of credit card balance insurance provide you with information about this insurance. This includes the types of benefits it provides and what it covers and doesn’t cover. You can find the terms and conditions in the certificate of insurance. You can usually find a sample certificate of insurance on the websites of the businesses that offer the product.
Benefits
The amount and the duration of benefits vary depending on the credit card coverage. For example, if you lose your job, balance insurance may pay a percentage of your credit card balance.
This is usually 10% to 20% of your balance:
- up to a maximum amount every month for a period of 5 to 10 months, or
- until you reach a cap on the total amount of benefits
If you become critically ill or die, balance insurance may pay off your balance in full or up to a maximum amount.
Credit card balance insurance benefits apply to the amount you owed on your card at the date of loss. This means the date of death, unemployment, total disability, or your critical illness diagnosis. Credit card balance insurance benefits won’t cover purchases you make on your credit card after the date of loss. Check the terms and conditions for specific information about when benefits will apply.
Restrictions, limitations, and exclusions
There are important restrictions, limitations and exclusions on the coverage provided by credit card balance insurance. You can find this information in the certificate of insurance. For example, coverage may exclude pre-existing conditions, and critical illnesses that the insurance covers will be specifically defined. Read the certificate of insurance carefully and ask questions if you don’t understand what it covers.
Cost of credit card balance insurance
Credit card balance insurance is expensive. Make sure that you consider all your needs and circumstances before you sign up for it. It may not offer you the insurance coverage that best meets your needs.
In some circumstances, credit card balance insurance may be more affordable. It also may provide you with better coverage compared to other types of individual or group insurance. This depends on various factors. For example, your age, sex, health, the initial loan amount and the type of product you’re getting insurance for.
You usually pay a monthly fee for credit card balance insurance. This is called a premium. Premiums vary from one product to another. The amount of the premium depends on your credit card balance. The higher your balance, the higher your premium will be. Your premium will change each month depending on the amount you owe. The insurer will charge your premium to your credit card. The amount will appear on your credit card statement.
The insurer calculates your premiums based on your monthly statement balance or as an average of your daily balances.
Say they calculate your premium based on an average daily balance. You pay off your credit card in full every month. They’ll still charge you a premium if your card had a balance at the end of any day during the month.
Example of calculating the premium based on daily balances
Say you signed up for credit card balance insurance. Your monthly premium is $0.95 per $100 you owe, plus applicable sales tax. This example shows your premium calculation for the month of December using the average daily balance method.
Step 1: Find out the total amount of daily balances
| Number of days during the month | Balance amount for that number of days | Sum of daily balances |
|---|---|---|
| 5 | $1,000 | $5,000 |
| 10 | $2,000 | $20,000 |
| 16 | $4,000 | $64,000 |
| Total of daily balances | $89,000 |
Step 2: Find out the average daily balance
Take the total of daily balances and divide it by the number of days in the month. This gives you to get the average daily balance:
The average daily balance is $89,000/31 days in December = $2870.96 plus applicable sales taxes.
Step 3: Find out the cost of credit card balance insurance for the month of December
Multiply the average daily balance by the premium rate: $2870.96 x 0.0095 = $27.27.
In this example, you’d pay $27.27, plus applicable sales taxes for your monthly premium. Say your average daily balance amount stays the same for the year. You’d pay almost $330 plus applicable sales taxes in insurance premiums for the year.
Examples of benefits you may get from credit card balance insurance
Here are examples of benefits that an insurer may include in a credit card balance insurance policy. The examples assume you are eligible to make a claim. There’s usually a maximum amount of benefit that you’ll be able to claim.
Example 1: Credit card balance insurance benefits if you lose your job
Suppose you have a credit card balance of $1,000. You pay 19% annual interest on your balance, which means about $16 per month in interest.
If you lose your job:
- your insurance company pays 10% of your outstanding credit card balance, or $100 a month. This is up to 10 months until the balance from before the date you lost your job is paid
- your balance at the end of the first month after the claim would be about $914
- your balance at the end of 10 months, if you don’t make additional purchases or payments, would be about $414
Example 2: Credit card balance insurance benefits if you become critically ill
Suppose you have a credit card balance of $1,000. You pay 19% annual interest on your balance, which means about $16 per month in interest.
If you become critically ill:
- your insurance company pays the entire credit card balance of $1,000
- your credit card balance, if you don’t make additional purchases or payments, would be zero. This is as long as the entire amount was under the maximum set out in your certificate of insurance
Learn how to make an insurance claim.
Cancelling credit card balance insurance
You can cancel credit card balance insurance at any time. Check your certificate of insurance for the steps to take.
You usually need to contact the insurance company. The insurance company is often different from the financial institution that issued your credit card.
Review periods
Most financial institutions offer review periods for credit card balance insurance. They call this a free look or trial period.
The review period is often for 20 to 30 days after your coverage starts. It depends on your province or territory. During this time, you can cancel the policy and get a refund for any premiums you’ve paid. Ask your insurance company to cancel the coverage within the review period.
Learn more about cancelling your insurance.
Filing a complaint about credit card balance insurance
Federally regulated financial institutions can’t charge you for balance insurance if you didn't agree to sign up for it.
You may notice a charge on your credit card statement for balance insurance that you didn’t sign up for. In that case, you may file a complaint.
Learn how to file a complaint with your financial institution or insurance provider.
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