Fast Facts about Payment Protection Insurance

Payment Protection Insurance (PPI) is a type of insurance that is often sold alongside a specific financial product (e.g. a loan, credit card or mortgage) as cover against the inability to make repayments in case you lose your income through an accident, a medical condition or unemployment. Policy terms vary but most policies will normally pay out a fixed benefit over a set period of time (e.g. three months, six months or up to twelve months).

You will normally be offered PPI as a matter of course whenever you take out a new credit card, loan or mortgage.

PPI can bring great peace of mind to those taking up significant financial commitments. However, great care should be taken to take out a policy that is just right for you in your specific circumstances. A first step towards doing this would be to not simply take up the policy offered by your financial institution straight away but to, instead, do a bit of homework first. This is even more important in light of the fact that there have been several instances in the past where PPI policies where mis-sold by unscrupulous lenders, leaving people with the impression that they were adequately covered when this was actually not the case. The following few points can help you to decide on the best PPI policy:

• Realise that you have options: Some lenders will make it sound as if it is compulsory that you get PPI and also that you have to get it from them. This is very rarely the case. If you do decide upon getting PPI you are well within your rights to get it as a ‘stand alone’ product from an insurance company of your choice.
• Determine the true cost: Some financial institutions ‘hide’ the cost of PPI by simply adding it to your repayment and not showing it as a separate amount on your statement. If this is the case you are most probably paying over the odds. Find out by asking to see a statement with the PPI costs separated out.
• Make sure that the cover is right for you. Some policies are very restrictive in their wording (e.g. Only covering those who are made redundant. This will obviously be quite useless in the case of those who are self employed.)
• Read the fine print: Some PPI policies have so many conditions and exclusions as to make them almost worthless. You can protect yourself from a very nasty surprise by making yourself aware of any possible exclusions before signing on the dotted line. Usually this would mean going through the ‘fine print’ of the policy document with a find toothed comb.

You may get the impression from the above that PPI is generally is not worth it. This is certainly not the case. A good PPI policy, tailored to your individual needs, can contribute a great deal to your peace of mind. It is just very important not to succumb to the ‘hard sell’ that often accompanies the marketing of these products and to instead make a choice on your own terms.

Summary:

• PPI policies offer protection against the inability to make repayments on certain financial products due to certain specified circumstances.
• PPI is not compulsory and it is possible to take it out as a ‘stand alone’ product
• Great care should be taken to make sure that the PPI policy that you choose is right for your specific circumstances.
• Some PPI policies are hugely expensive, it would therefore be worth your while to ‘shop around’ a bit.