Payment Protection Insurance For Credit Cards
Credit cards are one of life's essentials. From buying groceries to spending a week in the Bahamas, they offer us financial convenience at our fingertips. Our reliance on them means that we can 'buy now - pay later', safe in the knowledge that the salary from our jobs can be used to repay our debts...well, that's the plan at least!
But, what happens when the plan goes wrong? Unemployment or serious illness could strike users at any time, condemning account holders to a life of worry over how they are going to pay off the debts while they're unfit to work.
Fortunately, there is an escape route for credit card customers, and it comes in the form of payment protection insurance.
What is payment protection insurance?
Payment protection insurance is an insurance policy offered by card companies designed to help users pay off their debts in the event that they are unable to work because of unemployment or illness. It is offered by most companies as an 'add-on' product, and like all insurance schemes is sold on the strength of 'what if' scenarios.
How would you pay off your balance if you were made redundant tomorrow? What options do you have open for paying off your credit cards if you injured yourself and could not work for the next six months? The list of situations and illnesses that *could* render us incapable of meeting our repayment demands are numerous.
Payment protection guides us through these difficult times. With the help of the card companies, our repayments are guaranteed by the insurance policy. Account holders therefore don't have to worry about their debts when they have payment protection.
How does payment protection work?
Credit cards companies offer quite extensive payment protection schemes on their credit cards. A great many illnesses are covered on insurance polices, but there are limitations.
For instance, companies will not pay out to account holders with payment protection, where the account holder is suffering from common ailments like a cold or influenza. The providers definition of illness is one where the account holder is declared by a doctor to be unfit to work. Companies often stipulate a qualifying period too before they'll pay out on the insurance policy. This is normally a period of 15 - 30 consecutive days.
Involuntary unemployment triggers pay outs from providers too. Just like on illness claims though, there are again a number of provisos that credit cards providers put in place. These normally revolve around consumers opting for voluntary unemployment - a situation where companies will not pay out. Providers may also not pay out if the employment you were in was temporary, or if you were employed for less than 16 hours per week.
Life cover of up to £35,000 comes as part and parcel of many payment insurance protection schemes these days as well. This means that should you die the providers will pay off your debts.
How much does payment protection for credit cards cost?
Naturally, rates charged by companies for payment protection insurance does vary. On average, consumers should expect to pay between 70p - 90p per £100 covered on their credit card insurance policies. Given that credit card companies pay out the equivalent of around 15%-20% of the outstanding balance on accounts that qualify, often followed by a final payment to clear the balance after 12 months (if applicable), it's overall a very useful insurance policy for consumers to have.
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