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.

The benefits of payment protection insurance

Thanks to improvements in the marketplace, the benefits of payment protection insurance are becoming more obvious to many consumers. Payment protection insurance, or PPI, is an umbrella of insurance products that provide replacement for lost income for employees faced with involuntary redundancy, and sometimes accident and illness. The portfolio of protection plans includes three basic cover types. Income payment protection, mortgage payment protection, and loan payment protection are the three typical insurances that make up the PPI sector.

Though there are some subtle differences in design and intention, the benefits of payment protection insurance are similar. Providers have some difference in products but terms and conditions are fairly consistent. Most policies run for either 12 months or 24 months. Benefits typically begin either 30 days or 90 days after the insured event. Some plans offer backdated protection to the first day of claim.

The real benefit of payment protection insurance is the financial security it provides people when they are faced with unemployment. Many families are faced with budget restraints and rely on consistent monthly income to meet loan and bill obligations and to put food on the table. The maximum allowable protection under most plans is 1500 Pounds or half of your normal monthly income, though this can vary among providers. This may not sound like enough to keep you going without your monthly job income, but these benefit payments are non-taxed. This means the actual net pay is significant.

Payment protection insurance does not have to cost an arm and a leg. For years, many consumers were duped into believing that they had to buy PPI from large financial institutions. In fact, many borrowers either unknowingly, or based on pressure, purchased expensive payment cover from lenders at the point of receiving a loan. Some high street banks notoriously pressured borrowers into taking on the payment insurance as part of package with the loan product. Many even deceptively built the premium costs into the loan repayment in order to hide the true expense of the premiums.

Fortunately, today, the benefits of payment protection insurance are affordable. Following an investigation by the Office of Fair Trading (OFT) and one by the Financial Services Authority (FSA), fines were issued against some high street companies in 2007, and new resolutions have been put into place by the Competition Commission. For instance, loan payment and mortgage payment protection can now only be sold after a 7 day waiting period by lenders who want to sell to new borrowers. This restricts their ability to sell PPI through pressure tactics or deception.

Following the investigations, consumer awareness has dramatically increased. Now, more and more, people are learning that independent insurance brokers offer the best valued products that provide the benefits of payment protection insurance. Brokers sell plans that are 40 to 80 per cent less expensive than those available from financial institutions, depending on the product. These specialists also have a better service offering and maintain a better reputation for fair selling practices and support. Comparing PPI plans is efficient through a broker’s online website.