Credit card balance insurance

From: Financial Consumer Agency of Canada

What to know about credit card balance insurance

Credit card balance insurance provides coverage that may help to pay down, or pay off your outstanding balance if you:

  • lose your job
  • are involved 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.

You may be offered credit card balance insurance when you apply for a credit card, activate your card, or make changes to your credit card, such as getting 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 be approved for a credit card.

Credit card balance insurance might not be right for you if you have coverage from another insurance policy. Compare the coverage and cost that you would get with other insurance options. For example, a term life insurance policy, disability insurance policy or your employer’s insurance plan may already provide you with similar coverage but there may be a difference in cost.

If you have enough savings to pay your balance, or if you pay your balance in full each month, you may not need credit card balance insurance.

Credit card balance insurance is a type of credit and loan insurance.

Find out more about credit and loan insurance.

Learn more about the terms and conditions of credit and loan insurance before signing up for credit card balance insurance.

Understand your rights and responsibilities 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 and be enrolled in credit card balance insurance before you can be charged for it. This is known as giving your express consent.

To find out if you have credit card balance insurance you can:

  • check your credit card statement for premium charges
  • check your credit card statement to see if balance insurance is listed under optional products
  • check your credit agreement for any optional products
  • contact the financial institution or other business that issued your credit card to ask if you have credit card balance insurance
  • check for a certificate of insurance that came with your credit agreement or that came separately after you received your credit card

Keep in mind that credit card balance insurance is different then non-optional insurances for purchases, extended warranties, auto collision, or travel insurance that might be features of your credit card.

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 credit card balance insurance at any time. Take your time to decide if it’s the right coverage for you.

If you want to have credit card balance insurance on more than one credit card account, you must sign up for separate insurance coverage for each credit card account.

When you get credit card balance insurance, federally regulated financial institutions, including banks and federal credit unions, must give you certain information both before and after the policy takes effect. Credit card balance insurance must be explained to you in a way that is clear, simple, and accurate.

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 who sells you balance insurance will not do a full analysis of your insurance needs and financial circumstances.

Learn more about eligibility and applying for credit card balance insurance, a type of credit and loan insurance.

Understand your rights and responsibilities when you sign up for credit card balance insurance.

Understand the terms and conditions of credit card balance insurance

The terms and conditions of credit card balance insurance will provide you with information about this insurance, including the types of benefits it provides and what is and isn’t covered. 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 you’d get credit card balance insurance, like a bank or credit union.

Benefits

The amount and the duration of benefits will vary depending on the credit card coverage. For example, if you lose your job or become injured or disabled, 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 credit card at the date of loss. This means the date of death, unemployment, total disability, and usually means the date your critical illness is diagnosed. Credit card balance insurance benefits will not 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 that you get when you sign up for credit card balance insurance. For example, pre-existing conditions may be excluded from coverage, and critical illnesses that are covered will be specifically defined. Read the certificate of insurance carefully and ask questions if you don’t understand what’s covered.

Learn more about the terms and conditions of credit and loan insurance.

Cost of credit card balance insurance

Credit card balance insurance is expensive. Ensure 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 specific circumstances, credit card balance insurance may be more affordable and provide you with the coverage you need compared to other types of individual or group insurance. This will depend on factors like your age, sex, health, the initial amount of the loan, and type of product you’re getting insurance for.

You usually pay a monthly fee for credit card balance insurance. This is also called a premium. Premiums vary from one credit card balance insurance 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. Your premium will be charged to your credit card and will appear on your monthly credit card statement.

Premiums are either calculated based on your monthly statement balance or as an average of your daily balances.

If your premium is calculated based on an average daily balance, this means that even if you pay off your credit card in full every month, you will be charged a premium if your card had a balance on it at the end of any day during the previous month because you had insurance coverage.

Example of how your premium would be calculated based on daily balances

Say you have signed up for credit card balance insurance and your monthly premium is $0.95 per $100 you owe, plus applicable sales tax. This example shows how your premium would be calculated for the month of December, which has 31 days, using the average daily balance method.

Step 1: Find out the total amount of daily balances

Table 1: Example of daily balances with a $0.95 per $100 monthly premium
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 to get the average daily balance:

$89,000/ 31 days in December = $2870.96, plus applicable sales taxes, is the average daily balance.

Step 3: Find the cost of credit card balance insurance for the month of December

Next, you 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 tax for your monthly premium. If your average daily balance amount stays the same for the year, you’d pay almost $330 plus applicable sales tax in insurance premiums for the year.

Example of benefits you may get from credit card balance insurance

Here are examples of benefits that may be included in a credit card balance insurance policy. The examples assume you are eligible to make a claim. Keep in mind 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 you’ll be charged 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, for up to 10 months until the full balance from before the date you lost your job is paid in full
  • 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 make no 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 you’ll be charged about $16 per month in interest.

If you become critically ill:

  • your insurance company pays the entire outstanding credit card balance of $1,000
  • your credit card balance, if you make no additional purchases or payments, would be zero as long as the entire amount was under the maximum set out in your certificate of insurance

Find out more about making 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.

Usually you need to contact the insurance company. Keep in mind that the insurance company is often a different company than the financial institution that issued your credit card.

Review periods

Most financial institutions offer review periods for credit card balance insurance. This is also called a free look or trial period.

The review period is often for 20 to 30 days after your coverage starts, depending on your province or territory. During this time, you can cancel the policy and get a refund for any premiums you’ve paid. If you don’t ask your financial institution or insurance company to cancel the coverage within the review period, your insurance coverage will continue and your financial institution will continue charging you the premiums every month.

It’s best to understand credit card balance insurance and whether it’s right for you before agreeing to sign up for it, even for a review period.

Find out more about cancelling your insurance.

Making a complaint about credit card balance insurance

Federally regulated financial institutions, such as banks, can’t sign you up for credit card balance insurance or charge you for it unless you have agreed to sign up.

If you notice a credit card balance insurance charge on your credit card statement, but you didn’t agree to sign up for it, make a complaint by following these steps:

  • Step 1: start locally by contacting the financial institution where you signed up for your credit card
  • Step 2: escalate your compliant to the senior manager of the financial institution
  • Step 3: escalate your complaint to the financial institution’s internal ombudsman
  • Step 4: escalate your complaint to a third-party for their review of your complaint, also known as an external complaints body

Find out more about how to file a complaint with a financial institution.

If your complaint has to do with the insurance coverage or a claims process, find out how to make a complaint about your insurance provider.

If you think your complaint with a federally regulated financial institution, such as a bank or federal credit union, relates to a breach of a law, code of conduct or public commitment, you can contact the Financial Consumer Agency of Canada (FCAC).

Learn more about filing complaints with FCAC.

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