What Is a Payment Protection Plan?

A payment protection plan is a form of coverage offered by some credit card issuers and other lenders that lets a customer stop making minimum monthly payments on a credit card or loan debt during a period of involuntary 澳洲幸运5官方开奖结果体彩网:unemployment or 澳洲幸运5官方开奖结果体彩网:disability.

The plan may also cancel the remaining balance on the account if the borrower dies. Payment protection plans for credit cards generally charge a monthly fee based on the amount owed and the sitꩲuations covered. They are also referred to as debt protection plans.

How Payment Protection Plans Work

A payment protection plan is an add-on product sold by credit card companies that acts as a type of short-term insurance, allowing you to stop making your payments if you experience a hardship. The circumstances in which a payment protection plan covers include:

• 澳洲幸运5官方开奖结果体彩网:Disability that prevents the cardholder from working
• Unemployment
• Serious illness
• Death benefit

A payment protection plan is an optio෴nal product, and w🅘hether or not you buy coverage does not affect whether you qualify for credit or your credit card terms.

Purchasing a Payment Protection Plan

Typically, cardholders will be charged a monthly fee f𝓡or the plan, either as a flat fee or as🅠 a percentage of the statement balance.

According to the Consumer Financial Protection Bureau (CFPB), "Consumers may purchase the products when they apply for a new credit card or can add them to an existing credit card account. Card issuers often enroll new account holders in these products through either the credit card application, or at the time the consumer activates the credit card. Existing account holders can typically purchase the product by telephone, mail, or through the credit card issuer's website."

Types of Coverage

Payment protection comes in two basic forms, and a particular plan may provide either 🌞or both.

Debt suspension allows🐼 the cardholder to stop making🔯 payments for a period of time if they meet certain criteria, such as losing their job or becoming disabled.

澳洲幸运5官方开奖结果体彩网:Debt cancellation ends their obligation to pay all or part of the remaining debt, typically in the event of death.

How to Qualify for a Payment Protection Plan

Qualifying for benefits can be challenging. Below are some of the requirements to qualify for a payment protection plan's coverage 澳洲幸运5官方开奖结果体彩网:if you become disabled:

• Must be under the care of a physician for an accident or injury that makes you unable to work in any job you're qualified for, not just your current job
• Must have been working for several months at the time you signed up for the payment protection plan, meaning you can't purchase it if you're already unemployed
• Disability must have lasted for more than 30 consecutive days before payment protection will become active

Note that even if you meet the requireme𒉰nts, coverage will only last for a limited period of time, such as 12 months, regardless of whether your disability extends b🌌eyond that period. In addition, coverage will be limited up to a certain dollar amount, as specified in the agreement.

The details of a particular payment protection plan should be spelled out in the plan agreement and 澳洲幸运5官方开奖结果体彩网:disclosures, which you should be able to access from the 澳洲幸运5官方开奖结果体彩网:credit card issuer's or other lender's website.

How Payment Protection Plans Are Regulated

While they may appear to be a form of insurance, payment protection plans are technically considered a financial🦩 product. As such, they are regulated by a variety of agencies, depending on the type of financial institution that is selling them.

澳洲幸运5官方开奖结果体彩网:National banks are regulated by the 澳洲幸运5官方开奖结♕果体彩网:Office of the Comptroller of th𝓡e Currency (OCC), and state-chartered banks are regulated by the state banking department of that state. Most credit unions are regulated by the 澳洲幸运5官方开奖结果体彩网:Nationa👍l Credit Union Administration (NCUA).

What Does a Payment Protection Plan Cost?

The cost of payment protection can vary from issuer to issuer, and according to the type of coverage the plan provides. Scanning the websites of credit card issuers that sell these plans (and not all do), we found that prices of from $1 to $2 per month for each $100 in credit card balance were relatively common. So, for example, a cardholder with a balance that hovered around $5,000 each month could✤ pay roughly $50 or $100 a month and $600 to $1,200 a year for coverage.

Alternatives to Payment Protection Plans

Although a 1% oꦓr 2% monthly fee might seem relatively small—especially compared to the double-digit interest rates most cards charge on outstanding balances—it can add up.

Instead of buying a payment protection plan, many people may be better off putting that money into an 澳洲幸运5官方开奖结果体彩网:emergency fund. They can use an em🥃eܫrgency fund for many purposes besides repaying debt, and it's theirs to keep if they never end up spending it.

Another good use of the money could be to purchase 澳洲幸运5官方开奖结果体彩网:long-term disability insurance and/or 澳洲幸运5官方开奖结果体彩网:term life insurance. They can cover the same ri🥃sks as a payment protection plan and are also more flexible in ter🌳ms of how the money can be used.

The Bottom Line

Payment protection plans are often offered with credit cards or other loans. They may be helpful to some people, but there are less expensive and more flexible options for achieving t💜he same purpose.