Do I need balance protection insurance in case I lose my job?

Dear Bruce,

I have a line of credit and several credit cards with my bank. Now, representatives keep calling to try to sell me balance-protection insurance, saying if I lose my job, my credit rating won’t be affected. Is this worth the fee or a waste of money? — Kari, Red Deer, Alta.

Dear Kari,

It’s time to let those telemarketing calls go to voice mail. You should definitely have insurance to protect yourself in the aftermath of a catastrophic life event, but in my opinion, balance protection isn’t worth it. These policies help ease the burden if something happens that prevents you from paying your debts, such as job loss or illness. Each policy has different conditions, so I called and got a quote to show you some basic math. Say your average credit card balance is $2,000: It would cost you about $24 per month for coverage or $288 per year. If you lost your job,the insurance would pay $100 toward your balance each month, but it wouldn’t pay off the whole thing. That’s pricey. Instead of balance-protection insurance, keep some money in an emergency fund and apply for a line of credit that you will access only in times of trouble. Those two sources of immediate cash will allow you to cover the minimum payment on your credit cards and protect your credit rating.

Bruce Sellery is a personal finance expert and author of the bestselling book The Moolala Guide to Rockin’ Your RRSP. He’s a columnist for MoneySense magazine and a regular guest on Cityline and the Lang & O’Leary Exchange. Read more at moolala.ca.

Have a question about your finances? Email Bruce at letters@chatelaine.rogers.com