Consumers are unwittingly signing up to credit card-based insurance policies they may not need. Although a certain level of life or serious illness cover is an essential part of estate planning, most credit card "payment protection" or "card protection" plans duplicate consumers' existing policies or are unnecessary add-ons.
Payment protection:
This cover can be a life insurance, payment protection or serious illness policy. Most consumers purchase these types of insurance when they buy a home, marry or have children.
Single people without dependants do not need these types of life policies unless they own a home.
Purchasing payment protection from a credit card company - which would pay off all or part of your credit card bill in the event of illness or death - can be expensive for the cover provided.
AIB's payment protection plan covers an employee unable to work for 30 days due to an accident or illness or because they have lost their job. The policyholder will be paid one month's benefit for every 30 days they are unable to work. The monthly benefit is one-twelfth of the outstanding balance immediately preceding the claim.
Instead of unemployment protection, self-employed or semi-state employees may avail of AIB's critical illness cover for seven illnesses - bypass surgery, cancer, heart attack, major organ transplant, stroke, renal failure, loss of limb or sight (which attracts restricted cover).
Qualifying candidates will have the outstanding balance on their card cleared. In the event of death, insurers will pay the outstanding balance on the card subject to a certain minimum and restrictions.
Those purchasing the Tesco credit card policy must continue to pay monthly premiums while they are claiming benefit.
ACC, ESB, TSB, Tusa and Ulster Bank do not offer payment protection plans through their credit cards.
Cost:
Premiums for these credit card policies average 60p per every £100 outstanding on the customer's credit card balance each month. Therefore, if a customer has a £3,000 bill each month, he or she will pay £21.60 that month for payment protection or £259 for the year.
Of those surveyed, the lowest rate is offered by Bank of Ireland at 50p/£100 and Tesco is the dearest at 72p/£100. Bank of Ireland's cover is only available to those signing up for a new account.
Cover is provided upon a customer's death by some credit card issuers. Tesco pays a life benefit of up to £6,000 and Bank of Ireland to £5,000.
Exclusions:
In general, it is not possible to claim the unemployment benefit in the early months of the policy. Other exclusions in critical illness/death benefits usually include existing medical conditions, self-inflicted injury, and illness resulting from alcohol or drug abuse.
No cover is provided for periods outside the State, Northern Ireland or Britain. Childbirth, pregnancy and miscarriage are not included.
Card protection:
These policies protect customers against fraud if their card is stolen.
The Code of Best Practice of the European Banking Industry on Card-Based Payment Systems recommends that customers should not be liable for more than €150 before reporting a stolen card.
Normally, if a card is stolen and the customer reports it as soon as possible, Irish issuers will cover them for all but £50 of the losses. Ulster Bank holds customers liable for £25 if a card is used fraudulently before it is reported. If asked, providers will usually waive the minimum amount.
These card protection policies offer little real protection against fraud because customers' liability is already limited. Charges per year range from £10 to £15 for the issuers surveyed.
Some issuers offer additional services including: cancellation of other cards, payment of hotel bill and emergency cash in certain circumstances and replacement of airline tickets.
As usual, consumers should know what types of insurance they already have and read the small print of any new insurance contract.
