Credit Protection Insurance Easy Money for Credit Card Company; Waste of Money for You?

Credit protection insurance has seen a resurgence in popularity in recent months as more and more Canadians begin worrying about their economic stability. I stand by my contention that in most cases it’s an overpriced waste of money and should be avoided. In case you’re not familiar with what it is, I’ll give you a quick rundown of what it is, why you should avoid it, and what you should do instead.

First, credit protection insurance is designed to make your minimum monthly payments on credit accounts such as credit cards and some kinds of loans. In the event that you get laid off from your job, suffer some sort of off the job injury that prevents you from working for a period of time, etc., credit protection insurance would make your minimum monthly payments for you until you’re able to get back on your feet. Typically you’ll be able to draw benefits for up to a year and a half or two years.

The cost can be prohibitive: 75-80 cents for every $100 dollars of your account balance per month. If you pay your credit card balances off every month, but you use your card, you still pay the fee. As you can see, this can begin to get expensive. Assume for a minute you charge your entire food and gasoline budget to one card every month and pay it off when the statement comes. If you charge $1200 per month, credit protection would cost you $9 per month. That’s not so expensive, is it?

Hold on; let’s think this through.

If your minimum monthly payment is $15 and you pay $9 for credit protection insurance, your potential return on investment is lousy. If you’re so worried that you would consider spending this money, let me give you an alternative you might want to consider. Instead of spending the money on credit protection, put that money into a savings account each month.

If nothing happens, you look plenty smart. Over time, you can build a healthy savings account that could be used for other bills, to supplement an emergency fund, or even that dream vacation you’ve always wanted but have never been able to afford. If, however, you do incur a loss, you can pull those funds out of the bank and pay off the loan or credit card.

If you don’t have enough in reserve to do that, you can use those funds to make your minimum monthly payments until you get back on your feet, the balance is paid off, or your savings is depleted. Regardless, the money is all yours to do with as you wish.

Your credit rating is important. You should do everything in your power to protect it – without enriching a credit card company in the process. While your life won’t end if your credit rating takes a nosedive, it can make borrowing money more expensive – if you can borrow it when you need it.

Credit protection insurance simply offers too few tangible benefits for the cost. That’s the way I see it.

What do you think?

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