Credit card payment protection explained
If money ever started to run short, particularly if you faced a long-term illness, how would you pay your debts? Anyone who has fallen behind with a significant financial commitment will know that creditors don’t tend to stay patient for long. Falling behind with credit card payments is a serious concern for anyone who relies heavily on their plastic. The problem can seem even worse if you lose your salary simply because your sick pay ran out after you fell ill. Likewise, being made redundant is not a pleasant experience but can be even worse if you are left with a pile of credit card bills on the doormat. This is why some people who rely on plastic also rely on credit card payment protection insurance.
This type of insurance is part of the payment protection insurance industry and is geared specifically towards people carrying credit cards. Unlike broader policies, this type of cover is designed only for cards and will not protect things like separate loans and mortgages. Even so, it will act in much the same way in that it will provide a regular sum of money to help pay back the card debt in the event that someone is unable to pay it off due to accident, sickness, or involuntary redundancy.
Most companies will pay a straightforward percentage of the outstanding balance for every month that you are unable to pay through no fault of your own. A company might agree to pay 10 per cent meaning, if you had an outstanding debt of £1,000, their first payment on your behalf would be for £100. When it comes to the premiums involved, they are either one straightforward sum or are calculated in relation to the size of the balance. To give an example, a company might charge 80p per £100 that you owe, meaning if you owed £1,000 pounds on a card, you would be charged £8 for the premium that month.
As they are only designed to bridge the gap between getting better or finding a new job, policies will not pay out indefinitely, and will usually stop after 12-24 months depending on the provider. Unsurprisingly, they will also stop as soon as you find employment or recover and return to your old job. Some other rules which normally apply to this type of insurance include a requirement that you are 18 years of age or over and under the statutory retirement age in order to qualify for cover. A person will normally need to have held down a full-time job for a set period to qualify, around six months is the usual requirement.
Most people might have encountered credit card insurance already without fully realising it. Some providers will offer up this type of policy at the same time as they supply someone with a credit card. It is important to be aware of this practice, as these types of policy can be of poor value. Some customers might be tempted to simply sign on the dotted line without shopping around for alternatives - the reality is that standalone providers like protection specialists British Insurance can typically provide credit card payment protection for a much smaller price.
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For many years I have been a staunch campaigner against the major names in finance who, I believe, rip-off their customers by selling over priced, often unsuitable payment protection insurance (PPI) cover.
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