What is payment protector insurance and how does it work?

Payment protector insurance is a type of credit insurance that can cover your loan or credit card payments if you become unable to work due to job loss, disability, or critical illness.

Policies typically have a waiting period before coverage kicks in, often around 30 days, and may have maximum coverage periods of 12-24 months.

The cost of payment protector insurance is usually around 1-2% of your monthly loan or credit card balance, added to your regular payments.

Coverage levels can vary - some policies only cover minimum payments, while others may pay the full balance.

Limits are often capped at $50,000-$100,000.

Self-employed individuals may have a harder time qualifying for payment protector insurance, as the criteria often favors those with traditional employment.

Pre-existing medical conditions are usually excluded from coverage, so it's important to review policy details carefully.

Payment protector insurance is considered an optional add-on, not a requirement, when taking out a loan or credit card.

Insurers often market payment protector insurance as a way to provide "peace of mind", but consumer advocates caution about high premiums and limited benefits.

In 2009, a US government study found that for every $1 in premiums collected, insurers only paid out 21 cents in benefits.

Some credit card companies have faced lawsuits and fines for allegedly misleading consumers about payment protector insurance policies.

Alternatives to payment protector insurance include disability insurance, life insurance, and building up emergency savings to cover loan payments.

The COVID-19 pandemic has led some insurers to temporarily suspend new enrollments for payment protector insurance due to higher unemployment rates.