PPI – not just for loans

With financial institutions taking different positions on the decision by the Office of Fair Trading (OFT) to refer the UK payment protection insurance (PPI) industry to the Competition Commission, Moneyfacts has reminded consumers that they should also pay attention to the credit card PPI market. This market is sizeable, given that the credit card market had more than £54 billion in outstanding debt in December 2006.

Credit card PPI is a pay-monthly product, calculated at a price per £100 of the outstanding balance on a credit card or store card. The insurance usually covers, accident, sickness, unemployment, life cover and often hospitalisation benefit, with a qualifying period of between two weeks and a month before a claim can be made. There may be exclusions covering pre-existing medical conditions or back pain and stress related causes. A successful claim will result in the payment of 12 monthly payments of the minimum payment or between 3 per cent and 10 per cent of the outstanding balance.

According to Moneyfacts analyst Michelle Slade: ‘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.’

She warns: ‘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.’ As with other PPI, credit card PPI can also be bought from an independent provider.

Michelle Slade adds: ‘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.’