If you’re a credit cardholder, you’ve probably been offered balance protection insurance before. The sale pitch goes a little something like this: your credit card issuer will cover your outstanding balance if you run into a financial emergency. While it may sound good on paper, credit balance protection isn’t as good as it claims to be.

What is Balance Protection Insurance?

Debt repayment can be challenging, especially when you hit a financial roadblock. If you’ve lost your job, you’re unable to work due to sickness or injury, balanced protection is supposed to act as your “knight in shining armour”. Balance protection works like most types of insurance – you pay premiums in exchange for coverage. The amount of your premiums is based on the size of your credit card balance. The bigger your balance, the higher your premiums.

The big banks do everything they can to lure you into signing up. Here’s TD Bank’s sales pitch: “TD Balance Protection Plus and TD Balance Protection Insurance are two credit protection insurance products designed to assist in managing your credit obligations on your TD Credit Card(s) in the event of involuntary unemployment, loss of self-employment income, total disability, loss of life, dismemberment, critical illness or disability requiring hospitalization.”

Where Balance Protection Comes Up Short

Similar to other types of insurance, the banks wouldn’t be offering balance protection if they couldn’t make a buck. If you’re on the fence about balance protection, make sure to read the small print. While you might be covered for death or critical injury, you might have to pay higher premiums for additional coverage if you become disabled.

Another important thing to check is the amount you’re covered for. Many credit card issuers only cover your minimum balance. While this will help keep your credit rating intact, you’ll still continue to accrue costly interest while your balance remains outstanding. You could end up paying hundreds of dollars in coverage over your lifetime for only 2 percent of your balance or $20, whichever is higher. Talk about a cash grab!

Just like mortgage life insurance, balance protection isn’t very flexible. You can only pay off your outstanding credit card balance (it won’t help with your mortgage or funeral costs).

Disability Life Insurance

A far better alternative to balance protection is disability insurance. The good news is many employers offer group disability coverage at no extra cost to employees. All you have to do is stay actively employed and you’re covered. As with balance protection, read the fine print of your disability coverage to ensure it’s sufficient. You might consider buying individual disability insurance if your group policy isn’t enough.


The RATESDOTCA editorial team are experienced writers focused on sharing stories and bringing you the latest news in insurance and personal finance. Our goal is to provide Canadians with the information and resources they need to make better insurance and financial decisions.

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