Why credit card protection insurance?
When money is not so tight and you can pay a reasonable amount of your outstanding balance off each month, a credit card can seem like not such a threatening debt. It simply sits in your wallet or purse as an emergency or method for paying for something you would otherwise never be able to afford. Indeed, a card is a useful financial tool and even a sensible thing to have in the right circumstances. However, not everyone thinks carefully about how they would handle it if they suddenly lost their income. Being sacked from a job is wholly avoidable in most cases, but what if someone fell ill, was in an accident and was injured, or was made redundant involuntarily? Then a card debt can suddenly become a serious headache. For this reason insurance companies offer what is known as credit card protection insurance.
The idea of this type of cover is to help you to pay off part of your outstanding balance every month if you are suddenly stripped of your income through no fault of your own. Failing to pay means, firstly, bad news for your credit rating, and secondly, the threat of legal action and even repossession of your property. In exchange for a small premium, credit card protection will help take this type of concern away if the worst happens.
The first thing someone must do is decide what percentage of their outstanding balance they want covered. Premiums usually relate to the size of the debt and the percentage of cover. So, if someone has a debt of £2,000, and covers 10 per cent of this outstanding balance, they can usually expect a higher premium than someone with a balance of £1,000 pounds and coverage of 10 per cent of this. To give an example of how cover works, the person with the latter type of policy would typically have 10 per cent or £100 of their balance paid by their insurer after the first month of a successful claim following the loss of their income.
Some typical restrictions and exclusions apply. For example, most people will not be able to claim if they are laid up due to a pre-existing illness which they were diagnosed with before they took out the cover. Illness or injury which occurs as a result of drug or alcohol abuse or self harm will also not normally be covered. When it comes to redundancy, cover will only be provided if you did not know you were going to be let go at the time you took out the insurance.
Some people may have already encountered forms of credit card insurance without even realising it. A card provider may have asked them if they want to protect their plastic with a policy. This is known as selling cover at ‘point of sale’, and can be poor value when compared to some standalone firms who do not sell insurance in tandem with loans. One example is standalone payment protection specialists British Insurance, which offer just this type of independent credit card protection insurance.
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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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