Anyone who has a credit card may have been offered all sorts of add-ons when they first applied for it. Typically, a provider might offer protection for if the card happens to be stolen or if the person’s identity is somehow copied and then used to obtain a duplicate of the card. Many companies will also offer a form of insurance for when the person suddenly finds themselves in a position where they are unable to keep up with payments. Card providers are not the only people who supply this kind of cover, and many people may not even be fully aware of how credit card protection works.
Most policies protect a card holder should they suddenly find themselves without an income due to accident, sickness, or involuntary redundancy. Around a month after a successful claim, the provider will start to pay a proportion of someone’s outstanding credit card balance each month until the person receives an income again. The normal procedure is for a policyholder to insure a set amount of their outstanding balance, usually a percentage of what is owed each month.
This type of insurance is designed to make up the shortcomings of things like sick pay, redundancy packages, and a person’s savings. None of these things are likely to be adequate when it comes to keeping up with the regular commitments of a large credit card debt. Credit card protection which includes payment protection insurance will keep paying out towards the debt while someone is out of action. The main benefits of this is that it protects someone’s credit rating, and prevents their case been referred to a debt collection agency. Being out of work is enough stress as it is, without having to face the growing pressure of a large outstanding debt.
Payments will continue either until someone gets back to work, the debt is paid off, or the policy expires. Most will continue to pay out for anything from a few months up to two years.
A word on policies offered in conjunction with credit cards - they have been known to offer poor value and can be more expensive than policies which are bought independently. It is also worth mentioning that someone does not have to agree to take out such a policy in order to qualify for a credit card.
A better option might be to look around some of be less ‘high street’ type companies which are more independent and have different attitudes when it comes to commission for people selling insurance. An example of this would be specialist payment protection provider British Insurance, which can save people money on their credit card protection
without providing a ’stripped down’ policy which may fall short in a crisis. Remember there is no need to automatically take the first deal that is offered and a consumer could save cash by turning down cover offered at point of sale, and then finding a policy elsewhere.
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