A reader did a smart thing recently after getting a sales pitch from a banker to buy credit card balance protection insurance.
Instead of saying yes, he reached out for comment on whether this type of insurance is worth it. I was reminded of this song’s opening words in formulating my response. To keep things succinct, let’s just go with a bigtime No.
Credit card balance protection kicks in if you’re unable to pay your card bill because of a job loss, a total disability or death. But the amount of coverage can be as low as 10 to 20 per cent of your balance for job loss and disability, according to a bulletin from the federal Financial Consumer Agency of Canada.
The payout on death could be a lump sum of as much as $25,000. But for job loss and disability, you generally get your benefit paid over a set number of months. For example, you might get 20 per cent of your balance paid up to a maximum amount for five to 10 months.
One bank’s credit card balance insurance is priced at $1.20 per $100 on your balance up to $25,000. For example, you’d pay $6 plus taxes in a month with a $500 balance.
The average credit card balance in the third quarter of last year was $4,265, according to the credit-monitoring company TransUnion. This suggests an insurance premium of $51.18 a month, which seems excessive for coverage of just a slice of your card balance if you lose your job or you’re disabled.
If you’re open to buying insurance to protect your finances, consider term life insurance first and then disability or critical illness insurance. Two insurance types you can say no to are your bank’s credit card balance insurance and, as noted in a previous newsletter, insurance that pays your mortgage if you die or are disabled.
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Rob’s personal finance reading list
So how much are you tipping these days?
Results of a survey asking people how much they tip in various situations – sit-down restaurants, coffee shops, haircuts and more. The data on average tip by generation was most interesting.
Go-time for first-time homebuyers
A look at how the housing outlook for 2024 might play out for first-time homebuyers. There just might be a window of opportunity this year if mortgage rates decline. Now for a review of tax measures relevant to first-time homebuyers, including the first home savings account, the federal Home Buyers’ Plan and the home buyer’s amount, which is a tax credit for people buying a first home.
‘The silent killer of seniors’
It’s loneliness. Find out more in this well-written CBC piece on seniors living alone in Newfoundland, which has this country’s highest proportion of people aged 65 and older.
The CPP is fine, thanks
A Calgary Herald columnist looks at the lack of public support for the Alberta Pension Plan. Everyone has an interest in this story. If Alberta were to leave the Canada Pension Plan and start its own provincial pension, the stability of the CPP itself could be affected.
Ask Rob
Q: Why have I lost $1,000 in a U.S.-dollar money market fund? The fund company tells me there is foreign exchange risk, but I bought with U.S. dollars from my U.S.-dollar account.
A: Money market funds offer minimal risk of losing money and have made 4 to 5 per cent in the past year. The loss you describe appears to be a result of changes in the Canada-U.S. exchange rate. However, your fund is held in U.S. dollars and returns should be reported in that currency as well. It sounds like your fund company has converted your holdings to Canadian dollars in reporting your returns, which is not helpful. I suggest contacting your fund company to confirm this is the case.
Do you have a question for me? Send it my way. Sorry I can't answer every one personally. Questions and answers are edited for length and clarity.
Tools, Explainers, Guides and Charts
A review of online brokers and stock trading apps that don’t charge commissions. Some brokers charge as much as $9.99 to buy and sell stocks or exchange-traded funds.
The Money-Free Zone
The song I’m enjoying most right now is an unjustly obscure 1969 track from the R&B group Archie Bell & The Drells called Get It From the Bottom. Play, then hit repeat a couple of times for maximum effect.
Watch this
A video about the rise of solo travel, including people in relationships.
On social media
Sympathy for parents paying the high cost of baby formula on TikTok.
Attention financial advisers
Are you seeing high levels of financial stress among your clients? Are they worried about being broke, feeling stretched, even those with good incomes? To share your thoughts for an upcoming story in the Globe, please email editor Roma Luciw - at rluciw@globeandmail.com
In case you missed these Globe and Mail personal finance-related stories
– Getting or renewing a mortgage in 2024? Four interest rate strategies to consider
– Bank cards and digital payments are the norm for teenagers today. And that’s a good thing
– RRSP or FHSA, when saving for a house, keep an eye on your time frame, contribution limits
– Alberta credit union flaunts mistrust of banking system as regulators crack down on gold holdings
More Rob Carrick and money coverage
Subscribe to Stress Test on Apple podcasts or Spotify. For more money stories, follow me on Instagram and Twitter, and join the discussion on my Facebook page. Millennial readers, join our Gen Y Money Facebook group.
Even more coverage from Rob Carrick:
- 🎧 Catch up on Stress Test: Why millennials and Gen Z are Alberta-bound for a more affordable life • Rising interest rates brought pain for new homeowners – and opportunity for house hunters • Why more Canadians are choosing to be childfree or delay parenthood • Love in the time of inflation: How to manage rising costs when dating • You're not bad at money – you're suffering from money shame • Retirement might look different for Gen Z and millennials. Here's how to plan for it • Recession-beating tips for the job market, housing, investing and the cost of life • Is the middle class dead for millennials and Gen Z?
- ✔️ The housing file: A house isn’t special. Get your head straight about the reality of home ownership • The good, the sad and the unaffordable: Saving for a home downpayment in Canada’s big cities • Property taxes are popping in some cities – how worried should you be about other tax hikes? • Our other real-estate problem – people have too much wealth tied up in houses • Borrowers and savers, here’s how to time the eventual rollback of interest rates
- 📈 Investing: Canada's top digital broker is TD Direct Investing, with an assist from the TD Easy Trade app • 2023 Globe and Mail ETF buyer's guide part one: Canadian equity ETFs • For the ultimate in cheap investing, check out the Freedom .08 ETF Portfolio • Yes, there is risk in Canadian bank deposits for the unwary and complacent • CDIC covers bank deposits, but who protects your investments if your broker goes bust? • Answers to your questions about the low-risk ETF paying almost 5% • Happy fifth birthday to one of the all-time best investing products for everyday people • An investing strategy that wins cleanly over the long term by outperforming in bad years like 2022
- 💰 Your money: Mortgage holders, savers and GIC investors, it’s time to change your thinking on interest rates • How much debt is each generation of Canadians carrying, and how do you compare? • For the sake of their financial futures, young people should leave Toronto and Vancouver • This practical new spin on a savings account might just peel you away from your big bank • Rental fraud grows amid rise in fake, falsified tenant applications • Are Canadians worse off financially now than in the 1980s? • From groceries to auto loans, here’s how much more it costs to live right now • When saving for retirement, should you change your asset mix over the course of your career? • Do retirement income needs always rise alongside inflation? Not necessarily • When the bank suggests you lock in your variable rate mortgage, it has an angle
Rob Carrick