Junk Insurance

Junk Insurance: What it Is, Why it’s a Problem, and How to Protect Yourself

If you’ve ever taken out a loan or credit card, you may have been offered consumer credit insurance (CCI) as an option. CCI is marketed to protect borrowers in the event of unforeseen circumstances that may prevent them from making payments, such as illness, injury, job loss, or death. While it can offer some peace of mind, it’s crucial to be alert to the risks of so-called “Junk insurance” policies that may offer little real value to consumers.

This blog post will explore what you need to know about junk or add-on policies and how to protect yourself from them when considering consumer credit insurance policies.

What is Junk Policy?

  • It is a term that describes insurance policies that provide little to no real value to consumers. These policies are often marketed as “low-cost” or “affordable” insurance options, but they often come with significant limitations and exclusions that make them almost useless in many situations.
  • In the case of CCI, junk or add-on policies may have restrictive definitions of “job loss” or “illness,” which may exclude many circumstances where a borrower may be unable to repay their credit.
  • These policies may also have low benefit limits, which means that the amount paid out in the event of a claim may be far less than the amount owed on credit.

Why is it a Problem?

  • The add-on insurance can be a problem for consumers for several reasons. First, consumers may be paying for insurance that doesn’t provide the protection they need. This can lead to financial hardship in the event of a claim, as the policy may not cover the total amount owed on credit.
  • Second, these policies may be sold to consumers more effectively or deceptively. Consumers may be directed to believe they are purchasing a comprehensive insurance policy that will cover them in various situations, only to find out later that the policy has significant limitations and exclusions.
  • Finally, these policies may be sold to consumers who are unlikely ever to be able to make a claim. For example, an add-on policy that only covers job loss due to redundancy may be sold to a self-employed person who will likely be made redundant. In this case, the consumer is paying for insurance that they are unlikely ever to be able to use.

How to Protect Yourself from Add-on Policy

If you’re considering purchasing consumer credit insurance, protecting yourself from Add-on policies is essential. Here are a few tips:

Read the Fine Print

Before you sign up for any insurance policy, make sure you read the fine print. This will help you understand the limitations and exclusions of the policy, as well as any benefit limits that may apply.

Understand Your Needs

Think carefully about what you need from your CCI policy. For example, a policy that only covers job loss due to redundancy may not suit your needs if you are self-employed. Make sure you choose a policy that provides the coverage you need.

Shop Around

Don’t just settle for the first CCI policy you come across. Shop around and collate policies from different providers to ensure you get a better rate for your money. Remember, there may be better options than the cheapest policy.

Ask Questions

If you need more clarification on something, ask questions. Be bold and ask your insurance provider for more information about the policy, including any limitations or exclusions that may apply.

Seek Professional Advice

If you need interpretation on whether a particular CCI policy is right for you, seek professional advice. A financial adviser or insurance broker can help you navigate the complicated world of insurance and find a policy that meets your needs.

In Conclusion

Consumer credit insurance can provide valuable protection for borrowers in certain circumstances, but it’s essential to be aware of the risks of Junk insurance. By understanding what add-on insurance is, why it’s a problem, and how to protect yourself from it, you can make an informed decision about the type of CCI policy that’s right for you.