Barry Choi /

Can you pay for life insurance with a credit card? That's one of the first questions people ask after deciding that they're going to purchase life insurance. It's a pretty logical question since many people try to maximize the points or cash back they earn on all their spending.

In certain scenarios, you can indeed charge your life insurance to a credit card, but there are some conditions in place. In most situations, charging your premiums will benefit you, but in some cases, it may not make sense.

When can you use a credit card to pay for life insurance?

There are a few insurance providers that will allow you to charge your insurance policy to a credit card, but only if the annual payment is selected. Some people will jump at this opportunity since it's an easy way to earn points, miles or cash back, but note that using a credit card is only allowed in the first year of the policy.

After you've paid for your first year, you'll need to set up a direct debit from your financial institution. That means using your credit card to pay for life insurance is typically a one time deal.

Do all insurance providers allow you to use credit cards?

Unfortunately not, only some insurance providers give you the option to pay with a credit card. Although earning miles or cash back can be appealing, choosing an insurance provider just because they allow you to use a credit card is usually not a good idea.

Generally speaking, you should care more about what the policy provides and how much it'll cost. If the insurance provider happens to accept credit cards as a form of payment, that's a bonus.

Is it worth using a credit card to pay for insurance?

It really depends on what your goals are. For example, many of the best travel credit cards in Canada come with a generous sign up bonus, but you need to charge a set amount within a certain amount of time to qualify for that bonus.

That could be $1,000 within three months of opening your account. The value of the bonus differs depending on the credit card, but it wouldn't be unusual to get at least $250 out of it.

Let's assume for a second that your insurance policy is going to cost $30 a month. That's a total of $360 you'd spend on insurance for the year. If you chose the annual payment option and your insurance provider allows you to charge your policy to your credit card, you'd already be more than a third of the way to reaching your minimum spend requirement.

Keep in mind that some premium credit cards such as the American Express Platinum Card have a much higher minimum spend requirement, but it can be worth it since the welcome bonus might be more valuable. With this card, you'd want to charge anything you can to help you meet your minimum spend.

Using cash back credit cards for insurance

Life insurance is one of those things you hope that you'll never have to make a claim. You won't get anything if you don't make a claim (a good thing), but you can get something by using one of the best cash back credit cards in Canada. Many of these cards give you an increased earn rate for the first three months of card membership. How much are we talking about here? Some cards offer as much as 10% cash back for new clients.

Using the same $360 annual premium example, you would get $36 back with some credit card promotions. Okay, $36 isn't exactly a lot, but if you went the direct debit route, you'd get nothing, which is why using a credit card to pay for any expenses can be beneficial.

When not to use a credit card to pay for life insurance

You should never choose an insurance provider just because they give you the option to pay with a credit card. Having a policy that fits your needs is more important, so don't worry about any missed points or cash back.

Another scenario where it doesn't make sense to use a credit card to pay for your life insurance is when you know you won't be able to pay off the full balance on time. Since credit cards have an average interest rate of 19.99%, you could end up paying more in interest than any rewards you might earn.

If you do need to carry a balance on your credit card for a reason, use a low interest credit card as the rates are much more reasonable.

Which bank account should you use for life insurance?

It really doesn't matter what financial institution you use to pay for your life insurance, but using one of the best high interest savings accounts (HISA) can benefit you in other ways. As the name implies, HISAs pay high interest. That said, the term high interest is a relative term right now since we're seeing some of the lowest interest rates in history.

Many HISAs such as EQ Bank offer a rate of around 2%, which is significantly higher than traditional banks who typically pay 0% interest. Since you need to keep your money somewhere, you might as well make some interest on it with a HISA.

The interest rate you earn won't affect your life insurance payments since it's a direct debit, but the idea here is to make your money work for you by putting it in an account that pays some interest.

The final word

Some people may be disappointed to learn that you can't pay your monthly life insurance premiums with a credit card, but it makes sense since direct debit will usually ensure that there are no interruptions to your payments.

Barry Choi

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