COMMENT
Millions Conned By Card Cover!

By Cliff D'Arcy
October 24, 2005

Ever heard of credit card repayment protection, also known as CCRP? How about if I call it payment protection insurance (PPI) for plastic, does that help? If you're still shaking your head, let me explain what CCRP is and what it does, because it's a horror worth avoiding!

CCRP is optional insurance which covers the monthly repayments on your credit or store card if you are unable to work because of an accident, sickness or unemployment. These monthly benefits continue until you return to work or, typically, for up to a year. CCRP also includes life cover to pay off your entire balance if you die.

CCRP sounds like fairly useful protection, right? Wrong, because it's perhaps the most blatantly over-priced financial product currently on sale in the UK! How do I know this to be true? Because I worked in the PPI industry for more than a decade before becoming a financial writer. For example, I know that the profit margin on CCRP always exceeds 80% and often tops 90%. In other words, it's five to ten times as expensive as it needs to be. Wow!

The following table reveals just how much of a right royal rip-off CCRP really is (sorted by the fourth column):

The shocking secret cost of CCRP
Card issuer	Premium as % of card balance	Monthly benefit (% of balance)	Cost as % of monthly benefit
PRICEY
Nationwide BS	0.70	10	7.0
Tesco	0.75	10	7.5
First Direct	0.78	10	7.8
Halifax	0.78	10	7.8
Barclaycard	0.79	10	7.9
Capital One	0.79	10	7.9
Egg	0.79	10	7.9
GM Card	0.79	10	7.9
HSBC	0.79	10	7.9
Marbles	0.79	10	7.9
NatWest, RBS and MINT	0.79	10	7.9
PRICIER
Goldfish	0.89	10	8.9
Co-op, Smile & Northern Rock	0.76	5	15.2
Lloyds TSB	0.79	5	15.8
SURELY YOU'RE JOKING!
MBNA, Abbey & Virgin	0.72	3	24.0
Morgan Stanley	0.76	3	25.3
Post Office	0.79	3	26.3
Citibank	0.85	3	28.3

(By the way, you can find out which firms issue your cards in Do You Know Who You're Dealing With?)

So, the annual cost of CCRP on a balance of £2,000 varies from £168 at Nationwide BS to a whopping £214 at Goldfish, which has the highest premium rate. However, you need to look beyond the premiums charged - you need to check what these policies pay out, too. For example, the four CCRP policies in the third section of the table pay a monthly benefit of 3% a month, which is less than a third of the benefit paid by those policies which pay 10%.

If you look at the monthly cost of CCRP as a proportion of the monthly benefit (the final column in my table), you'll see that three American banks' policies are among the most expensive. Just to break even with Citibank's policy, you'd have to be off work for fifteen weeks of each and every year, which makes it the most expensive CCRP policy that I've ever seen!

Note than even if you never borrow on your plastic, you still pay CCRP premiums every month, because your premium is based on your monthly statement balance. Hence, for full payers, CCRP is a complete and utter waste of money. What's more, card issuers know that CCRP is the easiest steal around, so they keep jacking up their premiums every so often, confident that 99% of cardholders won't even notice, never mind care!

Let me put my argument as simply as I can: if you're not currently claiming on a CCRP policy and have no immediate worries about making a claim, cancel your policy today. If you really must have this peace of mind, try buying income protection instead or, alternatively, buy a stand-alone PPI policy through a broker or via the Web. Otherwise, by paying CCRP premiums to card issuers, you're contributing to a £1 billion-a-year rip-off!

More: Check out the captivating 0% cards in our Credit Card centre | Get Income Protection insurance here.

Cliff owns shares in HBOS, parent company of the Halifax and Bank of Scotland.