Credit Card Protection Insurance Explained

While most people hope to make it through life with no or minimal debt, the reality for the majority of us is often quite different. Borrowing of some form is virtually inevitable, be it a car loan or mortgage, both of which pay for the more expensive items in life. However, the most common and often the first form of debt we encounter is a credit card. Useful as they may be when times are tight or when a purchase needs to be spread, they can also cause a few problems if repayment bills mount up without being met. This is where credit card protection insurance can provide a vital lifeline.

While in stable employment which provides a regular and steady income, it can seem a straightforward and simple process to keep a card in check. A minimum repayment during a tough month, a bigger slice off at the end of a better month, and all can seem quite manageable. But should your income from employment be taken away from you through no fault of your own, things suddenly appear not so comfortable.

Credit Card Protection Insurance from Burgesses

It’s not something anyone likes to dwell on, but accidents and serious injuries do happen, and the threat of redundancy can also loom large in times of economic uncertainty. All of these unwanted but not uncommon scenarios leave a person without income and without the ability to pay credit card bills.

Some people may be content to rely on statutory sick pay to bail them out if the worst happens. But the reality is a UK employer is required to pay a person while they are ill for a maximum of 28 weeks – hardly enough to cover a long-term illness. When it comes to job seekers’ allowance when made redundant, the arrangements are even less generous. A typical person can expect around £60 per week at best – barely enough for food and fuel for many people, let alone credit card bills.

This is where a specialist policy which protects a person’s ability to keep up with outstanding balance statements can prove vital. Other, broader, types of payment protection policy are also available, which can cover the likes of energy bills and mortgages, but these may be too expensive or simply inappropriate for someone who is mainly concerned about a card debt. You may own your home outright, or live with your parents, but have a significant card debt which would prove the biggest hurdle if your income was lost – if this is the case, a specific card policy is more likely to fit your bill.

The way in which a credit card protection insurance policy works varies from one insurance provider to the next. Most will offer products which will pay a percentage of an outstanding balance for each month you are unable to pay through no fault of your own. Typical percentages are around five to ten per cent, so on a policy which pays out ten per cent, £100 a month will be paid for you on a balance of £1000. The idea behind these policies is to give a person the chance to focus on recovering or finding a new job without having to constantly worry about the card bills.

When it comes to premiums, providers will either charge you a set regular fee for the duration of the cover or work one out based on the size of a balance. So, some firms will charge say, £1 for every £100 on an outstanding balance, so if your statement stands at £1,200, your cover premium for the month will be £12.

Although many people will be able to get cover without any problems, some basic qualifying requirements apply to every policy. These will differ from one firm to the next but typically you will need to be a full UK resident who has been working for at least six months. Most providers also require applicants to be over the age of 18 but under the statutory retirement age.

Credit Card Protection Insurance

There are also some common exclusions which are features of most policies. For example, a claim is unlikely to be successful if it can be proved you were in some way told you were going to be made redundant before you took out the credit card protection insurance policy. When it comes to being without an income due to illness, a sudden worsening of a condition which existed before a policy was taken out is unlikely to be covered. Also, most providers will not make payments if you are off work due to alcohol or drug abuse.

Besides these simple restrictions, a policy can guard against the pitfalls of ending up getting behind with payments. Remember a card debt which goes unpaid will chalk up further interest and become harder to repay in the long run. If you encounter more serious difficulties in paying, your debt may be passed to a collection agency and a black mark slapped on your credit rating, which may make it harder for you to get a loan or card in future.

Credit card protection insurance is a policy which comes under the umbrella of the payment protection insurance industry, a sector which has had its fair share of negative press in recent times. The industry as a whole is still under investigation by the Competition Commission, in a probe not expected to finish until 2009. This was prompted after the Financial Services Authority found some firms had been ‘mis-selling’ policies to people who were not qualified for them or who did not need them. This should not mean a person ignores credit card protection insurance. Most of the concern relates to cover sold by financial providers at the time of providing customers with loans or cards. Therefore, take care when offered a policy at the same time as being given a card – these products can often give poor value.

Instead try looking at credit card protection insurance quotes from a wide range of providers and be sure to include smaller, independent firms in your search who may be able to offer better deals.