Credit Card Payment Protection Explained

Most people turn to insurance in one form or another to provide peace of mind during the unpredictable twists and turns that life can bring. Anyone driving a car in the UK must have a policy and the majority of homeowners have a contents insurance policy in place to protect against fire and theft. These are just some of the ways of maintaining a safety net against the unexpected. However, physical accidents are not the only threat to our well being – financial upheaval is also a crisis many people face at some point in their lives. This is where products such as credit card payment protection can come in handy.

Effectively an insurance policy which protects your ability to meet credit card bills, this form of cover can develop extra significance and relevance in times of economic uncertainty. Such a product will ensure you keep up repayments if you suddenly lose your income through no fault of your own due to accident, illness or involuntary redundancy. It could be a term you have heard before but do not fully understand. This would not be surprising given it is just one of a broad range of cover products designed to protect people’s abilities to meet debts, often known as payment protection insurance.

Credit Card Payment Protection from Burgesses

For some people, credit cards are among the most significant forms of financial commitment they have. Although a useful and valuable tool, they can also be expensive should you fall behind with repayments or continually only make minimum repayments due to sudden financial difficulty. They can bail you out just before pay day or help you spread the cost of expensive items, but are also a potential hazard if allowed to spin out of control and work up interest. In the worst cases, an inability to pay can see threatening letters, the involvement of debt collection firms and a black mark on your credit rating.

A credit card payment protection plan is designed to prevent all this if you are left without an income through no fault of your own. The options for cover are numerous. Many banking and insurance firms offer policies which, while all providing similar levels of cover, will contain subtle differences. A policy will usually pay a percentage of your outstanding balance for you each month after a successful claim. How high this percentage is will depend on your individual provider, but typical levels are around five to 10%. Some insurers will let you choose the percentage, up to a limit, in exchange for a sliding scale of premium prices.

Premium costs can either be set solid and remain the same for the life of the policy subject to certain limits on the amount of balance they cover, while others will be worked out according to how high your balance is at a given time. For example, a firm may charge you 75p per £100 you owe, meaning if your balance was £1,000, your premium would be £7.50 for that month. Note that if you are unable to pay and claim successfully, a policy will not help towards repayments forever. Most have limitations of around 12 months or so, designed to allow enough time to recover from injury or find new employment.

Having decided on a provider and policy, you must then meet the insurer’s qualifying criteria to be fully eligible for a policy. Typically you will need to be over 18 and under the statutory retirement age. You will also need to be the named card holder for the account you want to insure and be a full, permanent UK resident. Some other typical rules are that you will need to have been in employment for around six months straight and work a minimum number of hours a week.

Credit Card Payment Protection

Some companies will either exclude you from cover or impose certain restrictions if you are in a certain set of circumstances, such as are self-employed or on a fixed-term contract. When it comes to making a claim, one or two obvious conditions will also apply. For example, you must have lost your income specifically through no fault of your own, so you will not be able to claim if you are sacked. Likewise a claim will not be successful if you are forced off sick for a medical condition which you were being treated for before you took a policy out.

Some people may wonder why a credit card payment protection insurance policy is needed when a State benefits and statutory sick pay system exists in the UK to help people in times of need. Sick pay will not last forever and may not cover the amount of time it takes someone to recover from a serious illness or injury. When it comes to jobseekers’ allowance, payments usually only amount to around a little over £60 per week on current UK rules. This will usually go on rent or food bills, leaving no room for the likes of credit card bills. When it comes to credit cards, debts can also be simply too big to manage on a very tight budget. A person with a large outstanding balance of around £10,000 may be confident of paying this back gradually while working, but feel swamped if their income were to disappear, meaning cover is probably needed.

Finally, credit card payment protection may be a familiar-sounding phrase to you purely because of its association with the payment protection insurance market. This sector is still the subject of an ongoing investigation by the Competition Commission after some big-name firms were found to be mis-selling policies to people who did not need or did not qualify for them. However, most of the attention is focused on products which are sold when tacked on to cards or loans. For this reason, treat a potential policy with particular care if it is offered to you in conjunction with a credit card. The market is a diverse one and many smaller providers, some of which offer an independent angle, can be among the better value insurers out there.