Payment Protection Insurance – A Lifeline in Difficult Times

Being in debt without any means to repay it can wreak havoc to your personal financial security, not to mention your credit rating. This scenario can easily arise when, through no fault of your own, you are unable to earn an income due to involuntary redundancy, illness or a serious accident. It is in such a situation that an insurance product called ‘Payment Protection Insurance’ (PPI for short) can be a lifesaver. The basic function of loan payment protection policy is to offer consumers a way to keep up loan repayment for a period of 12 to 24 months even if they are not working.

There are several different kinds of PPI policies and the terms and conditions and benefits will differ from policy to policy. It is therefore quite wise to shop around in order to find the product and the level of cover that will be right in your specific circumstances. In general you have to be between 18 and 65, in full time employment and a UK resident.

It is very likely that you will be offered PPI when taking out a new loan. It could however well be that you will do better by shopping around a bit as some loan providers tend to regard their clients as a ‘captive audience’ as far as selling insurance is concerned. It is however possible to take out insurance on the ‘open market’ (you can do this by speaking to a broker or directly to an insurer) usually at much better rates than those offered by loan providers. It is very important to remember that a loan provider cannot force you to take out the policy that it issues (or recommends). There is therefore nothing to prevent you from trying to find a better deal.

Payment for a PPI is through a series of monthly payments. If you are paying on a monthly basis it is very important to keep up regular payments as non-payment could lead to a policy cancellation.

PPI policies will normally pay out in cases of incapacity or redundancy. In the case of loans it will cover the monthly payment for the agreed period. In making a claim you will have to prove that the main conditions for the policy to be paid out (e.g. that you are unemployed and/or unable to work) have been met. This means that it will be necessary to lodge supporting documents like medical certificates or a letter confirming the termination of your employment to the insurer. You may also be required to prove that you did not lose your job because you:

• Resigned
• Took voluntary redundancy
• Broke the conditions of your employment

The extra money that you will have to add to a loan repayment to take out PPI might seem like an unnecessary expense as you are paying it. However having a policy in place can very often be the one thing preventing temporary unemployment turning into a full-blown and catastrophic financial crisis.

Summary:

• Payment Protection Insurance (PPI) is designed to protect borrowers against the inability to repay their debts due to unemployment or incapacity.
• PPI can be purchased either through the loan provider or on the ‘open market’
• In some cases the premium for the PPI policy is added to the loan while a monthly payment is required in others.
• Upon claiming under a PPI policy it will be necessary to prove that you actually meet the conditions for the policy to pay out.