Types of insurance
All credit cards will offer some kind of insurance to go with their cards, otherwise known as credit shield, payment protection and/or credit safeguard. All of these aim to provide the cardholder with security in cases of unemployment, injury, disability or death, all of which would could make credit card monthly payments difficult or impossible.
With insurance, a monthly fee is paid so that in the event of any of the above, credit card payments would be suspended, only the minimum payment would have to be paid, or interest applied to the account may be stopped altogether for a certain period of time. The conditions for insurance are dependent not only on the type of cover which you take out, but also which event occurs.
There are four major types of insurance policies which can be taken out - life, disability, involuntary unemployment and property:
- For disability and unemployment, the insurance cover will specify that only the issuer's minimum monthly payment has to be paid, and sometimes this is only allowed for a limited period of time. This means that you will still have to pay interest on what you owe, as most of the bill will not be paid off in this time.
- In cases of major illness, the credit card provider will usually specify that the cardholder must have been employed for a minimum of 20 hours a week before the illness occurred, otherwise they will not stop payments or interest.
- If you are diagnosed with a critical illness or, in the event of death, then usually the insurance coverer will pay off the whole balance on your credit card.
Insurance terms and conditions
It is very important that you read and understand the terms and conditions of the insurance policy before you decide to take out cover, as you may find that there are many loop holes for the insurance provider to get through. Before you sign the contract, ask the provider, or check the small print, for answers to the following queries:
- What situations will the insurance cover me for?
- Will this insurance cover my spouse/the additional cardholder?
- What are the requirements for each policy?
- Are their any factors which restrict the life or disability insurance, e.g. age or previous illness?
- Is it possible to cancel the insurance at any time? How do I go about cancelling the insurance?
- Can I choose which policies I wish to buy or do I have to take out them all?
- How much does it cost? Are they separate costs? How often will I have to pay this?
