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It is a reality of modern life that you are going to have at least one credit card and loan in your name – if not many. While you are earning a good wage and your family is young and healthy this doesn’t seem like something to concern yourself with, and it’s not until the plans you had for your life are disrupted that you realise how much your debts can weigh you down. Even if it’s not one specific event which propels you into reflecting on your debt levels, just the daily grind of making repayments and paying interest can be enough to make you feel trapped with no way out.
So what if you knew there was a way out if the worst were to happen? That is where payment protection comes in, and it is available for most loans and credit card debts so that don’t have to feel trapped by your debts if you are struggling with an unexpected event in your life.
What is credit card and loan repayment protection?
Repayment protection is a form of insurance which will help you meet your debt repayments if you become unable to do so. In most cases credit card and loan repayment protection will :
- Pay your debts if you lose your job, become unable to work because of illness or injury, or if you die.
- Will pay the balance of your debt according to your level of cover.
- Make payments directly to your credit card or loan so you don’t have to think about your bills.
Credit card and loan repayment protection is often offered as an extra when you take out an eligible product, and the circumstances which are eligible for a benefit payment will differ between providers. In other cases you could take out a separate policy to pay your bills in the event that you become sick or injured and unable to work, or in the event of your death – such as total and permanent disability insurance, or life insurance.
Regardless of how you protect yourself, it is important that you recognise the pressure your family would be under to meet debt repayments if you were no longer able to earn an income. Repayment protection will usually cover your credit card and loan repayments for 12 to 24 months, after a waiting period of between 30 and 90 days depending on the coverage. In the case of income protection insurance or a similar policy, up to 75% of your income will be paid as a benefit amount, which can then be used to cover your bills.
What does repayment insurance cost?
If you take out repayment protection when you sign up for your credit card for example, you will usually pay a premium amount which is a percentage of your outstanding balance, for example many banks will charge premiums which are 52 cents for every $100 owning on your credit card at the end of each statement cycle. For example if your balance was $1,000 you would pay $5.20 for your repayment protection, if it was $5,000 you would pay $26.00 per month.
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If you are taking out a separate policy to protect your repayments, then the premiums will be calculated on a number of factors relating to your health and lifestyle. While the amount of coverage will still affect how much you pay – the more coverage you want, the higher your premiums will be – the costs can also be determined by your age, your credit history and the coverage inclusions.
It is also important to remember that if you are offered repayment protection as part of your loan package, it can end up costing you more if your lender bundles your premiums into your repayments. This is because you will end up paying interest on your premiums when they are added to your loan amount, and you could save hundreds of dollars by taking out a separate policy.
Why you need credit card and loan repayment protection
If you take up protection through your credit card provider for example, you won’t have to undergo a medical exam and your age, job and medical history won’t affect the costs of your cover. You can also often receive your credit card repayment protection benefit, even though you are receiving a worker’s compensation, sick leave or government assistance pay out.
By taking out repayment protection you are protecting more than just your home or your credit card balance, you are protecting your credit history too. If you become unable to meet your repayments and you default on your loan or credit card, this will be recorded on your credit report and can make it difficult to apply for a new loan or line of credit when you get back on your feet and are ready to move forward. However, when you receive your repayment protection benefit, your loans and credit cards can continue to be paid without disruption.
How to choose repayment protection
There are two main types of repayment protection insurance policies you can choose from :
- Standard protection. This policy won’t require you to provide any information about your age, gender, occupation, smoking status or other risk factors, and simply allows you to decide on the level of coverage you want.
- Age related insurance. The more information you provide, the lower you can get your premiums in many cases because younger policy holders are less likely to make a claim. In this instance your premiums are determined by your coverage amount and your age.
When you are comparing repayment protection make sure you look for the following :
- Death benefit. When you die your debts don’t always die with you and if your family relies on your income to pay off loans and credit cards, make sure that your repayment protection includes a death benefit pay out so they don’t have to worry about finances at an emotionally difficult time.
- The right coverage amount. Assess your personal situation and decide on how long your savings and other assets would allow you to life for without an income – remembering that you may not want to liquidate all of your assets in times of personal financial crisis. Also look at your debt levels and other income sources.
- Be aware of exclusions. Make sure you understand all of the exclusions of your repayment protection because you don’t want to be paying for coverage which won’t be there for you when you need it. For example, some types of coverage won’t pay out if you’re working part time instead of full time, if you are self employed, if you are suffering from a pre-existing medical condition or you are working on a contract basis.
How to claim your repayment protection benefits
If you find you are in need of your credit card or loan repayment protection, you can make a claim quickly and easily through your provider. Contact your credit card or loan provider, or the company which issued your insurance policy by mail or over the phone to provide a :
- Completed claim form.
- An employment separation certificate, or a letter from your employer if you have lost your job.
- A signed claim form from your medical practitioner if you are claiming because of illness or injury.
- A copy of the death certificate if claiming the death benefit.
Your claim will then be processed, and according to the waiting period specified in your policy, the benefit will be paid directly to your credit card or loan account.
