Credit Balance Insurance: Is it worth it?

During a recent call to my credit card company, the friendly service associate handled my issue quickly and I thanked him for his assistance. Before I could say goodbye, I got a hard sell for a "great new service" that would "help me" if I could no longer pay my bill. Credit balance insurance. I don't exactly want another insurance policy, and I declined the offer, but I decided to do a little research on the subject:

What is Credit Balance Insurance?

Basically, an insurance company, or card issuer, will pay the minimum payments on your credit card should you experience a life altering event, such as a death or job loss, that finds you unable to make the payments. Now they don't offer this service just from the graces of their hearts. The coverage is based on you paying a certain premium, which is added on to your monthly credit card bill.

How does it work?

The terms and conditions of each policy may vary, so it's important to read the contract or certificate. The following are typical benefits of credit balance insurance policies:

• The Credit card issuer, or insurance company, will cover your minimum payments until you return to work. There are stipulations as to how long and how much they will pay. Many have limits of 24 months and $5,000 (or $50,000), whichever comes first.
• You must be less than 70 yrs old and your account must be in good standing. That means no late payments and the balance is under the credit limit.
• If you die or are critically injured, they will pay off your balance completely, keeping your family from having to pay. Again, there are usually limits as to how much they will cover. Usually the maximum amount is either $5,000 or $50,000 and they will only cover critical illness, such as cancer, with no preexisting conditions.

Before you apply

If you choose to get the service, be sure to fully understand the costs associated with the policy and how and when it works. Ask your credit card issuer these questions before accepting any contract:

• How is the premium calculated?
• What does the policy cover?
• What are the conditions for obtaining benefits?
• What illnesses and disabilities are covered?
• Is your spouse or supplementary cardholder covered?
• When and how are the benefits paid?
• What is the maximum amount of time the benefits will be paid?

Source - Financial Consumer Agency of Canada: About Credit Balance Insurance