OTTAWA, ONTARIO--(Marketwire - Aug. 14, 2012) - Credit card balance insurance is often offered to people when they apply for, or when they have received, a credit card. To help Canadians decide whether this is a product that meets their needs, the Financial Consumer Agency of Canada (FCAC) has updated the information it provides to consumers about credit card balance insurance.
"Credit card balance insurance is optional. You are not required to buy it to get a credit card," says Ursula Menke, FCAC Commissioner. "This guide is intended to provide consumers with basic information about credit card balance insurance: what it is, how it protects you, what it costs and how you can get it. It also outlines other insurance options that may offer coverage for outstanding credit card debt. You may find that you are already covered through other insurance you already have."
New regulations that came into force on August 1, 2012 stipulate that federally regulated financial institutions must obtain your consent before charging you for a new optional product or service, such as credit card balance insurance.
"The financial institution must provide you with certain information both before and after you provide your consent. All communications seeking your consent must be clear, simple and not misleading," adds Commissioner Menke.
The cost of credit card balance insurance
The guide explains that the monthly fee for this insurance, called a "premium," will change each month depending on the balance owed. If someone carries a large balance from month to month, the premiums can quickly add up. For example, if the premium is $0.95 per $100 of balance owing, the monthly premium could range from $.95 (or $11.40 a year) on an outstanding balance of $100, up to $95 per month (or $1,140 a year) on an outstanding balance of $10,000.
The monthly premium is charged to the credit card, so if the cardholder is close to the limit on the card, the payment for balance insurance may put the cardholder over that limit. This could result in an "over-the-limit" fee on the credit card.
Before signing up
"It is important that consumers understand the cost, the benefits and the maximum amount that the insurance company will pay," Commissioner Menke added.
FCAC also recommends that consumers start by reviewing their financial situation to determine their insurance needs. Then, they should check how much the insurer would pay in each situation that is covered, when and how it pays benefits, any conditions or limitations that may apply to these benefits, as well as how they can make a claim, cancel their coverage or make a complaint.
Coverage can also be limited. For example, while some plans will cover the minimum monthly payments for a specified period if the card holder loses a job, the credit card issuer will continue to charge interest on the balance every month. Also, most plans limit coverage for disability to specific illnesses such as cancer, heart attack and stroke.
More information about credit card balance insurance, including a comparison of credit card balance insurance fees can be found on FCAC's website at itpaystoknow.gc.ca.
With educational materials and interactive tools, the Financial Consumer Agency of Canada (FCAC) provides objective information about financial products and services to help Canadians increase their financial knowledge and confidence in managing their personal finances. FCAC informs consumers about their rights and responsibilities when dealing with banks and federally regulated trust, loan and insurance companies. FCAC also makes sure that federally regulated financial institutions, payment card network operators and external complaints bodies comply with legislation and industry commitments intended to protect consumers.
You can reach us through FCAC's Consumer Services Centre by calling toll-free 1-866-461-3222 (TTY: 613-947-7771 or 1-866-914-6097) or by visiting our website: itpaystoknow.gc.ca.
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