Toronto Star
News
You could be paying for insurance you didn't know you had on your credit card balance.
Usually sold by telemarketers, the insurance has a small monthly fee. It's easy to miss.
A mother told me she spotted a
charge - labelled payment protector premium - on her daughter's CIBC Visa bill.
Her daughter, a recent university graduate working at her first job, said she hadn't authorized the charge. But the bank had recorded the call and could show the daughter had agreed to the insurance.
"The agent explained the details and verified three times with the client that she wanted the service and had 30 days to cancel if she changed her mind," said
CIBC
spokesman
Rob McLeod
.
Credit balance insurance is usually more expensive than regular forms of disability or life insurance.
You may not need it if you already have life insurance or a disability plan - say, through your employer - that will help you pay off your debts if something bad happens.
You may also have enough income from savings or investments to cover your minimum credit card payments.
Let's take a closer look at
CIBC
payment protector, which is similar to other banks' insurance plans.
For a cost of
per
of your monthly balance, the plan will help you make credit-card payments if you're seriously ill or laid off from your job. But all it covers is the minimum monthly payment - or 3 per cent of your balance.
It pays off your full balance only if you or your spouse die or you're diagnosed with cancer (other than skin cancer) - and even then, only up to a
maximum.
Suppose you have an average card balance of
a month, which you always pay in full.
You're paying
a month for insurance that covers a minimum payment of
a month (3 per cent of
).
That's high-priced coverage for the protection you receive.
If you're unemployed, the insurance pays your minimum balance only for a maximum of 12 months.
Age is also a factor. At 65, you don't get benefits if you're disabled, unemployed or hospitalized. At 70, you don't get life insurance (except for accidental death).
Credit card balance insurance sounds cheap, since the cost is always quoted in cents per
.
It's very profitable for banks, even after paying for outside telemarketers. (My son had a summer job selling this insurance and I saw how well-trained he was to counter objections from clients.)
While there's no charge for
CIBC
payment protector in months where you have no transactions, the cost can escalate when you have high balances that are not paid off.
With a
monthly balance, your insurance premiums will add up to
over a full year.
The average monthly premium is
per
of outstanding balance, according to the
Financial Consumer Agency of Canada
,
www.fcac.gc.ca
.
Scotiabank's
plan is only
per
of outstanding balance, with a maximum benefit of
.
Meanwhile, GE Money Canada (sponsor of The Bay's credit card and
MasterCard
operations) charges
a month for its account protection plans. The maximum benefit is
.
So, think carefully about why you need such expensive insurance. And if you accidentally say yes, try to get out during the 30-day cancellation period.
Next week, we look at what merchants pay for credit cards - and why they're worried about costs rising for debit cards, too.
eroseman @ thestar.ca
