Credit Card PPI – Do you have it? What it covers? Or what it costs?

Michelle Slade, analyst at moneyfacts.co.uk comments: “As we await the outcome of the OFT review into the sales process and pricing of PPI, much attention over the last few months has focused on the issues of personal loan insurance. But with £54.9 billion outstanding credit card debt in December 2006, the credit card PPI market is equally important.

“The recent fine of GE Capital Bank, a major player in the store card market, reinforces the message that card PPI is also an area that has its own problems in terms of PPI sales techniques and general transparency.

How does it work?

“Credit card PPI is paid on a monthly basis, calculated at a price per £100 of the outstanding balance of your card. So even if you repay your balance in full, the insurance premium will still be payable based on your statement balance, as ‘cover’ has been in force for that previous month.

“Like most insurance policies, the exact terms and conditions will vary between providers. But typically the insurance will cover accident, sickness, unemployment, life cover and often hospitalisation benefit. Normally the policies will include a ‘qualification period’ and require you to be unable to work for a period of between 14 and 30 days before a claim can be made.

“There will often be many exclusions to these policies, which typically include pre-existing medical conditions and in some cases back pain and stress related causes, two of the main causes of work absences.

“Should you be successful in making a claim, the insurance will normally be subject to a maximum of 12 monthly payments (if you remain off work), at either the minimum payment or a set level of 3-10% of the balance outstanding.

How much does it cost?

“Research by moneyfacts.co.uk has found the average cost of card PPI is 80p per £100, but can range between 45p/£100 to as much as £1.50/£100.

“Taking insurance or having ‘rainy day’ savings to protect your day to day finances from unforeseen circumstances should be a must, especially as our disposal incomes are becoming more and more squeezed with lending rates, utility bills and council tax rises hitting our pockets hard over the last twelve months.

“But what you must ensure is that you are getting value for money, know exactly the cover you receive and most importantly willingly choose to take the policy.

“So when signing up for a new credit card or store card, check that you have opted for the insurance only if you really want to and have the full information available. Sales staff are highly targeted to sell PPI, so could be very insistent. But also remember that as it is paid on a monthly basis, subject to cancellation terms, the policy can be cancelled at any time.

Remember, you don’t have to buy your credit card PPI cover from your card provider; you can purchase this insurance from a standalone independent broker such as paymentcare.co.uk.

“Perhaps look to review any existing life or income protection policies, these may do the job equally and if not better, at a much more competitive rate. After all, you have the ability with these to shop around for the best deal and not just accept the price, which your card provider quotes. While it is important to be insured, there is no need to be over-insured.”