Credit Card Payment Protection Insurance Explained

Life can be an unpredictable experience for many of us, with the twists and turns often key to what makes it all an enjoyable experience. Not all of the unexpected changes we encounter are welcome however, and from time to time key assets such as regular incomes can be suddenly snatched away without warning. Be it through a notice of redundancy, an accident which puts you out of action, or an illness, a lack of income can mean an inability to keep up with some important commitments such as credit card bills. This is where credit card payment protection insurance can prove to be a vital lifeline.

The product is often bundled under a broad insurance umbrella known as payment protection insurance, sometimes just referred to as PPI. Standalone credit card cover, however, is generally widely available rather than only as part of a very general protection policy.

For many people, a credit card is an extremely handy lifeline when it comes to paying for certain goods they would never normally be able to afford. It can also help to cover essential things when cash is getting a bit tight before the pay packet comes in at the end of the month. Many people also remember when they successfully applied for their first full credit card when reaching adulthood and the appropriate income.

Credit Card Payment Protection Insurance from Burgesses

Anyone who has gone on to hold a card for a period of time will also have learned how important it is to keep up with the repayments on it. While it might not always be possible to meet the bill quickly in one or two payments, making only the minimum repayment can hike the interest and not making payments at all soon results in stern letters and a black mark on credit ratings. The longer-term consequences can even involve debt collection agencies and repossession of property.

Thankfully, most people at least manage to keep a lid on their finances to the extent that they can avoid the worst consequences. However, should the unpredictable arrive and the income from an employment is lost, trouble soon brews.

A loss of income means it is suddenly very difficult to meet the regular card payments, which can result in a big debt swelling to a massive one. This is where a credit card payment protection insurance policy can provide a lifeline.

For many people a credit card is the one thing they worry about more than most, in some cases it may cause more concern than even a mortgage. Perhaps a debt has mounted up and requires big payments each month, or maybe someone has enough in reserve to keep paying the mortgage for a while, but not card repayments. This is where a specific policy can help, as opposed to wider and very general payment protection schemes which cover a list of payments.

When taking out a policy, a customer must first chose what level of monthly outstanding balance they would like covered. Companies will typically offer to pay a certain percentage of your outstanding balance per month you are without an income. So, if you have a debt of £1000, and your insurer has agreed to pay 10% they will pay £100 a month towards it until you find a new job and fresh income. Note that insurers will not pay bills indefinitely – there will be a policy limit on how long they will pay out for, from a few months up to a year or so.

No-one is guaranteed to get a policy when applying for one – providers operate different qualifying criteria which potential customers must match. Some very common requirements include being a permanent UK resident and over 18 but younger than the statutory retirement age. Most applicants will also need to have been in employment for a set period of time already, usually around six months.

Credit Card Payment Protection Insurance

Once successful claims are made, the insurer will pay out after you have been without work for a set amount of time, usually around a month, meaning you can concentrate on finding a new job or recovering. Most policies will cover you if you are unable to work through a severe illness, accident resulting in injury or through involuntary redundancy.

A few common exclusions apply – claims will not be approved if you are off sick due to self-harm or drug or alcohol abuse. You will also not be able to make a claim if you are simply sacked from a job or if it is found you knew you were soon to be made redundant when taking out the cover.

As part of the payment protection insurance sector, credit card payment protection insurance falls into a category of products which have attracted a fair amount of negative press and attention in recent times. The source of this is an ongoing investigation by the Competition Commission into the payment protection insurance market. The results of this are not due until 2009.

Most of the attention has focused on policies which are promoted to consumers at the ‘point of sale’ for a loan or credit card. Some loan and credit card providers, including some big-name banks, have been accused of inappropriately pushing their own brands of cover on people who are applying for their financial products. Some firms have even been found guilty of ‘mis-selling’ policies to people who did not need them or to people who did not even qualify for them.

The way to avoid this is to simply treat any offer of credit card payment protection insurance from a firm supplying you with a card or loan with care. Such policies can be overpriced, and remember you are not obliged to take out such cover deals. Instead try looking further afield and speak to some independent firms, some of which can offer cheaper deals and specialise in just this type of insurance. Instead of avoiding this potential lifeline, consider carefully what level of insurance is best for you and avoid taking the first deal which is nudged in your direction.