Can I Pay My Life Insurance With a Credit Card?

Can you pay life insurance premiums with a credit card?

You might be wondering this if your credit card offers a generous rewards rate or cash back.  

At present, only a few life insurance companies in Canada accept premium payments through a credit card, provided you pay annually.  

What Payment Options are Offered by Most Life Insurance Companies?

When you apply for a new life insurance plan, you will be asked to pick a life insurance premiums payment mode — that is, how you will pay the life insurance premiums and the intervals at which you will pay them. It is important that you pick a payment option that works best for you because your policy may lapse due to one missed payment.

Accepted premium payment methods vary by insurance carrier. However, most of them offer the following options:

• cheque
• debit card
• electronic funds transfer (EFT).

Maintaining sufficient funds in a bank account is crucial for electronic funds transfers (EFT) and other payment methods.

Can you Buy Life Insurance with a Credit Card in Canada?

Yes, you can purchase a life insurance policy with a credit card in Canada. Some Canadian life insurers let users pay the initial premium payment with a credit card.  

The idea of paying life insurance with a credit card to earn reward points or cash back can be appealing. But you should not choose a provider solely because it accepts credit cards. Instead, you should pick a life insurance company that offers affordable premiums, has a strong financial health rating, and provides robust customer service. If such a provider happens to accept credit cards, that is a bonus.  

Which Life Insurance Companies Allow Payment by a Credit Card?

There are a few Canadian insurers that allow you to pay for life insurance with a credit card, but only if you pay the premiums annually.

At present, the following life insurance companies accept credit cards:

• Bank of Montreal (BMO)
• Canada Protection Plan (CPP)

It is important to contact your insurance provider to explore available payment methods and potential discounts for timely payments.

With CPP, you can pay the initial and future premiums using a credit card, as long as you pay them annually.

BMO, in contrast, lets you use your credit card only for the first premium payment, but you must pay for the entire year at one go. After the initial payment, you will have to switch to another premium payment method, like a cheque, EFT, or debit card.

Compared to paying by a credit card, other methods offer more payment frequency options. With a cheque, an EFT, or a debit card, you can typically pay monthly, quarterly, semi-annually, or annually.

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Why Insurers Do Not Accept Credit Cards for Premium Payments

Life insurance helps protect your family from potentially devastating financial losses that could result if you die unexpectedly. In exchange for premiums, the insurer promises to pay a death benefit to your family when you pass away. However, your family receives the insurance proceeds only if your policy was active at the time of death.  

A single missed payment may cause your policy to lapse. If you pass away after your policy has lapsed, the insurer is under no obligation to pay the death benefit.  

When credit card is selected as the payment method, the chances of missing a premium payment are high. If your credit card expires before the premium payment is due or if you max out the credit limit, the insurer will not be able to collect the premium, which may eventually lead to a policy lapse. This is the reason why most insurance companies in Canada do not accept credit cards.

Is it Worth Using a Credit Card to Pay for Life Insurance?

Whether paying life insurance with a credit card is worth it or not depends largely on your goals. In some situations, however, it can be a good decision.

It is important to maintain sufficient funds in your checking or savings account to cover automated monthly payments and avoid overdraft fees.

For example, let us say you have just got a new travel credit card. These credit cards usually come with a welcome bonus, which allows you to collect additional points after you spend a certain amount of money in a limited period. Let us assume that the spending threshold for collecting the welcome bonus is $1,000 and the timeline is three months.

If you pay the annual insurance premium of $440 with your credit card, you are almost halfway to meeting the spending threshold.

Some credit cards offer an increased earn rate during the first few months instead of additional points. That could be as much as 10% cash back. Using the above example, you can get $44 back if you pay the annual premium through the credit card. While $44 is not a lot, it is still something. You will not receive any cash back if you pay through a cheque or EFT.

When You Should Avoid Using a Credit Card for Paying Life Insurance  

Paying life insurance with a credit card may not be a good decision if you cannot pay the credit card balance in full that month. With the average credit card interest rate being as high as 24.99%, you are likely to lose more money than you will earn through cash back or points.

Choosing the right insurance coverage for your individual financial needs and circumstances is crucial to ensure you are adequately protected without overspending.

Having a life insurance policy that perfectly matches your long-term goals is what matters the most, so do not worry too much if you cannot pay the insurance premium through a credit card. And if affordability is a concern, consider reducing the death benefit or the policy term (in the case of a term life policy) to lower the premium amount.

Conclusion

Policyholders can pay life insurance premiums in different ways. Typically, these include a cheque, EFT and debit card. While life insurance  payment with a credit card can be more advantageous, only two Canadian insurers — BMO and CPP — accept credit cards, provided you pay annually. With BMO, you can only use the credit card for the first premium payment, after which you will have to select another payment method.

Frequently Asked Questions (FAQs)

Can you pay life insurance premiums monthly using a credit card?

No, you cannot. Insurance providers accept credit card payments only if you pay the premiums annually. If you want to pay premiums monthly, quarterly, or semi-annually, you will have to pay by cheque, EFT, or a debit card.

What is the benefit of paying life insurance with a credit card?

Paying life insurance premiums with your credit card may allow you to earn reward points or cash back and, consequently, reduce the cost of insurance. Similarly, many major auto insurance providers accept credit card payments for car insurance, offering convenience and potential benefits such as reward points or cash back.

Do life insurance companies in Canada accept Bitcoin or cryptocurrency payment?

At present, no Canadian life insurer accepts Bitcoin or cryptocurrency payment.