Credit card protection explained
Paying for more expensive items by credit card has become a fact of life the western consumer market. Millions of people use them every day for items like expensive electrical goods, emergency repairs to their cars, and even things like groceries before the money finally comes in on pay day. Most people are fully aware of what happens if they are unable to keep up with their payments. Interest increases rapidly, letters start to arrive from the bank and there is even the risk their property will be repossessed. A more lasting effect involves a negative impact on their credit rating which might affect their ability to borrow in future. This is why some people opt for different kinds of credit card protection to make sure they are still able to pay even if they lose their income.
Should someone find they suddenly lose their salary because of illness, accident, or involuntary redundancy, this type of cover will step in and carry on paying a section of their outstanding balance each month until they are once again able to pay it themselves. This type of cover is therefore a payment protection insurance product aimed specifically at a credit card. It will not pay for things like mortgage debts, or other types of loan.
This type of cover will often be offered in conjunction with a card. This means the plastic provider will actually offer a policy to an applicant at the same time as they set up the credit card. This is known as offering a policy at ‘point of sale’ and will not always provide the best available deal. Do not be tempted to sign on the dotted line just because the policy is being offered by the same person who is providing your credit card - this connection does not mean they are giving you a discount. In fact you might find far cheaper cover by saying ‘yes’ to the card, ‘no’ the insurance and shopping around a range of standalone providers to get an insurance policy.
Once in place, a policy will activate following a successful claim and will pay an agreed percentage of your outstanding balance each month until you are able to start paying it again yourself. The percentage will be agreed when you take out the policy and about 10 per cent is a normal starting point. So if you have a balance of £200, the first insurance payment on the bill would be £20.
This means a credit card holder need not unduly worry if they suddenly lose their income through no fault of their own - the insurance will make sure they always continue to pay off the card balance, although they will only payout for a maximum amount of time, which is normally about 12 months.
Simon Burgess is managing director of British Insurance. His company is a standalone provider that only deals in cover and does not attach protection to loans. He said: “Shopping around is important not just for retail items but also for insurance. A good card provider is not automatically a good card insurance provider, and a consumer might find credit card protection is cheaper elsewhere.”
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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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