Are credit card add-ons worth the cost?
Credit card issuers offer a variety of add-on services and insurance products, which you can add on for a fee, but do you need them?
Before you sign up, do your research. You may be covered for many of the services these add-ons promise, and you don't want to be paying for a duplicate product. If you do decide you need an add-on, make sure you comparison shop to get the best price.
"Do the math - you'll probably find out that it's a lot cheaper to take on these things individually," says Laurie Campbell, CEO of Credit Canada Debt Solutions. "I don't think there's clear language around these add-ons."
Here's what add-ons you might see on offer, what their purposes are and how to decide which is the best way to acquire them.
monitoring and identity theft protection.
Credit monitoring and ID theft protection may be offered as a package, or they may be sold individually.
Credit monitoring involves a periodical review of your credit report for potentially fraudulent changes, such as a new credit application.
"Consumers may not be informed or understand the product," says Campbell. "They might even think that this product can improve their credit score or help them build their credit, but it has nothing to do with that."
Identity theft protection is another product consumers might not understand.
The Public Interest Advocacy Centre's report, Identity Theft Insurance - Miserly Upon Misery, says ID theft protection is not intended "to insure against losses caused by fraud from identity theft, but rather ... to assist the victim with incidental costs in responding to the crisis of identity theft and the efforts required in repairing credit and maintaining access to credit."
In other words, the identity theft protection covers you for things such as fees for filing documents, and not the actual fraud losses.
However, you are already protected against those losses. The PIAC report explains, "Consumers should never be liable legally for the losses caused by fraud. The companies that are defrauded by the use of personal information are generally the parties that must bear the loss if the thief is successful."
The question is: do you need either of these services? Maybe.
You may already have one or both of these products, as they may be included in your home insurance policy or with your credit cards, so be sure to check.
In addition, both credit bureaus, Equifax and TransUnion, offer similar protection. If this is a product you think you need, compare the costs and benefits first.
In short, balance protection insurance will maintain your minimum payment on your credit card if you lose your job or are medically unable to work.
Your monthly premium is based on your average daily balance and costs between 94 cents per $100 (with Bank of Montreal), to as high as $1.19 per $100 (with RBC). Payout in the case of unemployment or illness will be either 5 or 10 per cent of your balance, depending on the card.
Sounds simple enough, but it's not.
TD, for example, has eight pages of fine print explaining its balance protection insurance and all its caveats. For example, If you lose a part-time or seasonal job, or if you resign from your job, you're not covered.
Additionally, those on a fixed income, such as through Ontario Disability Support Work or Canada Pension Plan, "don't need that type of balance protection because they don't have any income fluctuations, so it's a waste of money for them," Campbell says.
Even if you don't fall in that category, she says, do the math. On a $500 average daily balance, you will pay between $4.70 to $5.95 each month (depending on the credit card), for a total of $56.40 to $71.40 per year.
And if your average daily balance is $5,000, then you can multiply that amount by 10, and it's no longer a small number. It's $564 to $714 every year.
"That's how people get themselves into financial difficulty, by these small expenses all adding up and causing havoc on their budget," Campbell says.
"Over time, it's definitely not worth it. Chances are you have bigger problems."
Her suggestion is to consider an alternative that you can likely get at a fraction of the cost; namely, life and disability insurance. Disability insurance also can help with those "bigger problems," like your rent or mortgage payments and food, as well as your minimum credit card payments.
Then, put the difference into an emergency fund and pay down your credit card.
Roadside assistance is a benefit included with several credit cards, so check the cards in your wallet to see if you're already covered. If you're not, do your research before you purchase this add-on product.
Campbell says it's important to understand not only what benefits you're getting and what your costs are, but also how to cancel the insurance.
"There's a whole bunch of rules around some of these products," she says. There are limits to how far your vehicle will be towed, what type of vehicle is covered (an RV, for example, may not be covered), and how often you can call. In addition, the service is likely being offered by a third party and not the credit card company.
RBC's Road Assist service, for example, is provided by Dominion Automobile Association. You may be able to get a better price if you deal directly with the company or one of its competitors.
Will McAleer, president of the Travel Health Insurance Association of Canada, says travel insurance is important, especially when you travel outside of Canada.
"Coverage for a Code Blue emergency in a U.S. medical facility can cost, say, $10,000 a day, but it can cost $10,000 an hour depending on the services being performed," he says. "So, it's a significant financial risk."
How much of that your provincial health insurance will pay out depends on where you live, McAleer says.
You may have travel insurance coverage through your group employee plan or as a perk with a credit card, so check all potential sources. If you need and want travel insurance coverage, you can purchase an individual plan either directly from an insurance company or as a credit card add-on.
Purchasing a plan directly from an insurance company has its advantages.
"The benefits around that are that you're getting a policy that's typically a little bit more tailored to your needs because you shopped around for it and made sure you're getting the proper coverage," McAleer says.
He says that for the majority of people, though, credit card travel insurance may be a good choice.
"The coverage terms and conditions are often similar to the individual policies, but it is incumbent on the person who is depending on those benefits to make sure that they seem more than the statement insert," he says. "Make sure you read the certificate of insurance because that's the important part."
The THIA offers some golden rules for getting travel insurance:
- Know your health.
"There will be a standard stability condition on it [the policy]," says McAleer. "You will need to be stable for a certain number of days prior to your departure." That means no changes in medications or symptoms with a pre-existing condition and no new conditions.
- Know your policy.
"Read the fine print. Don't just look for the cheapest plan," says McAleer. Make sure you're covered for any of those pre-existing conditions.
- Know your trip.
Some policies won't cover more adventurous types of activities such as mountain climbing or bungee jumping, so consider what you might be doing while you're on vacation.
The point of the insurance is to make sure you have a carefree trip because you're confident that you're covered. It's important to do your homework and ask the right questions. Other things to consider include:
- The number of total days that are covered
- Maximum age of the policy (McAleer says the cutoff age for most credit card travel insurance is 64
- What type of insurance you have - make sure it's emergency medical travel insurance and not just trip cancellation and interruption.
Regardless of which add-on you are considering, the most important thing is to do your due diligence.
"Truly, I think it comes back down to simple money management rules that our grandparents knew well," says Campbell. "You save for a rainy day (i.e., unemployment), you don't borrow more than you can handle, you live a frugal life, and you live a stress-free life.
"And don't trust something that you don't understand," she adds. "Don't just assume that they [the credit card companies] know what's right for you. You have to be your own advocate."
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