The protection racket: are extended warranties, travel insurance or rental car protection worth buying?

Part 3

Balance insurance

Ever worry that an accident or layoff might make it impossible for you to pay your credit card bills? “Balance insurance” covers the monthly payments on your debt if you run into these problems. The premium is determined as a percentage of your current balance and added to your bill. Typically you’re asked to pay just under 1% of your balance for a policy that covers you in the event of death, disability or job loss.

Don’t fall for it. “If there ever was a type of insurance where you could say ‘Don’t bother with it,’ this is probably it,” says Praskey. She points out that you’re usually covered for only the minimum monthly payment on your credit card, so you’ll continue to pay interest on the balance. “Generally, you’re going to lose money in the long run. You’re better off paying down your card balance rather than paying premiums.” If you’re really worried about making sure your debt won’t spin out of control in event of an accident, Praskey recommends you buy a comprehensive life, disability or critical illness policy.

Be particularly suspicious of balance insurance offered over the phone. Many telemarketers offering credit-card insurance are scam artists looking to get your credit card number.

Furnace protection

If you’re a homeowner, chances are you’ve heard pitches from people who want to sign you up for protection plans covering your furnace and air conditioner. Policies cost about $140 to $220 a year for a typical forced-air gas furnace, and about 10% less for an air conditioner.

Make sure you know exactly what’s included. Most plans cover parts and labor, but only some include the costliest components, such as the heat exchanger. You probably don’t need any policy if your furnace is less than a decade old, but buying protection does begin to make sense when your equipment is nearing or past the 15-year mark. Martin Luymes, director of the Heating, Refrigeration and Air Conditioning Contractors of Canada (HRAC), strongly recommends you choose a plan that includes a yearly cleaning and checkup. These plans cost more, but the preventive maintenance will help your unit run more efficiently.

Before signing up for any plan, make sure you’ve compared it to the competition. Some private companies — such as Direct Energy in Ontario and Alberta — include their name and service number on your gas bill and can add their plans to your monthly payments. Many homeowners, says Luymes, automatically reach for their bill and call that number, mistakenly believing they’re dealing with the utility. In fact, these service companies are no different from other contractors that offer protection plans. Shop around using the Yellow Pages or a Web site such as HRAC’s.

Part 1: Extended warranties Part 2: Car rental waivers and trip cancellation insurance Part 3: Balance insurance and furnace protection

From the November 2004 issue.

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