What is Credit Card Insurance?
Credit card insurance is a type of payment protection. The scheme is attached to specific credit card accounts and pays towards any outstanding balance on your behalf if you’re incapable of doing so.
Credit card insurance is advantageous since it alleviates the burden of repaying your card issuer. It also protects your credit rating in case your income is halted by various unforeseen circumstances:
- Involuntary unemployment – if you get laid off, you can get credit card insurance to make minimum monthly payments. Bear in mind that purchases following your job loss aren’t covered.
- Disability – this type of insurance helps you repay any outstanding amounts and shields your credit rating. In general, the payments are made during a specific period, and purchases after your disability can get excluded.
- Critical illness – some issuers may offer to pay off the entire credit card if you’re diagnosed with a terminal illness.
- Death – obtaining credit card life insurance repays the debt if the cardholder dies. The policy beneficiary is the institution that issued the credit card.
You can also obtain schemes tailored for certain client segments, such as students or the cardholder’s spouse. The benefit varies by issuer. Some cover minimum monthly amounts due to job loss or disability and repay the entire balance in case of critical illness, serious injury, or death.
Why Was Credit Card Insurance Purchased?
Credit card insurance is usually obtained when people make many purchases with their card and run up a large balance. Furthermore, they often haven’t saved enough money for a rainy day and don’t have disability, life, critical illness, and/or job loss insurance. Consequently, there’s an unexpected income reduction or interruption, and the client isn’t able to make their monthly payments.
By taking out credit card insurance via the issuer, customers can still make payments toward their outstanding balance in unforeseen events. Insurance limits vary by policy.
Should the client feel they no longer need the insurance, they can do away with the coverage, terminating the associated premium.
Examples of Mis-Sold Credit Card Insurance
Sometimes, a financial institution may sell credit card insurance even though the client doesn’t need it. Some of the most common instances of mis-selling include:
- Too much commission for the lender – you may be able to tell if you’ve been mis-sold credit card insurance if you check the lender’s commission. Generally, if they obtained over 50% of the PPI, you may qualify for compensation.
- Vague or insufficient sales explanation – if customers aren’t made aware of all policy terms before the purchase, they may be entitled to a refund. For instance, if the company doesn’t cover all the exclusions applying to your policy, you may end up paying for a product you can’t use.
- Selling credit card insurance to ineligible people – another example of mis-selling is if the company offers their insurance to self-employed clients or customers with pre-existing conditions.
- Obtaining insurance due to a mistaken belief – apart from not explaining policies in-depth, salespeople can also convince customers that the insurance is mandatory. Also, clients may be led to believe they are more likely to obtain their loan if they make the purchase.