Do you need Payment Protection Insurance?

We all might have heard about Payment Protection Insurance (PPI) and how it has been mis-sold to many customers, whom have now been rightly compensated.

When coming to purchase a PPI policy, there tends to be strict limits on when you can make a claim, so you need to be sure that it fits your needs before you buy.

Here we have some information regarding all aspects of PPI.

•So, what actually is PPI and what does it cover?

Payment Protection Insurance, often abbreviated to PPI, is a policy that is designed to help keep up with payments on your financial agreement if you were unable to work through illness, accident or redundancy.

For example if you had PPI on your mortgage, but are sadly made redundant, a regular sum of money will be paid out to cover your monthly mortgage repayments.

This would also be the case for other credit agreements, such as loans, credit cards or catalogue shopping payments.

The insurance company will pay the monthly repayments (or a percentage of them) for a fixed period of time- usually 12-24 months, or until you return to work.

•What did PPI not cover?

Payment Protection insurance wasn’t the most suitable product in many situations as it didn’t cover some policy holders; situations like this include: those who were retired at the time of purchase, those working part time, people who were already covered by an existing policy, students and those with pre-existing medical conditions.

This meant that the policy rendered useless in many situations for customers.

•Why might you consider having a PPI policy?

You should possibly consider a PPI policy if you have a mortgage, loan or other financial agreement in place in which you want to ensure the repayments are still paid should you fall ill, lose your job or be involved in an accident.

If you feel that this may be you, reading the policy carefully is important when you come to take out the insurance, as you want to ensure that it definitely covers you and your requirements.

•Who wouldn’t need to purchase a PPI policy?

In the following situations, you probably do not need a PPI policy.

•If you have an employee benefits package which gives you an income for six months or more, a PPI policy would not be necessary, as you would be able to use this money to get by and continue making the repayments.

•If you have savings available to use to keep up with repayments, a PPI policy isn’t needed as the savings are available to use.

•If you have support available through your partner, family or friends. Perhaps your children are grown up and your partner has enough income to cover your mortgage and other repayments.

•Pros of having a PPI policy.

There are many positives to having a PPI policy in place, some of which are mentioned above, but which also include;

•It is included at a price which is established by a professional, which you can easily afford to pay and is therefore suitable for you.

•It makes repayments a lot easier and affordable should you be unable to make the repayments.

•It is a great help for those with little or no savings available.

Cons of having a PPI policy.

Although there are many advantages to taking out a PPI policy, there are also some drawbacks to the insurance product.

•Standard policies will not cover you should you need to make a claim and you are self-employed, retired, a contract worker or student.

•Not all illnesses are covered, if you have a recurring injury, mental health issues, back pain, stress or depression, you may not be able to make a claim.

•PPI policies only cover a specific debt, so, for example, your current credit card bill, if you spend more on another card, that debt won’t be covered, and any redress made from a claim will instantly go to paying that debt, meaning you can’t use it for anything else.

•Is PPI good value for money?

Payment Protection Insurance can be good value for money, but only if; you meet all the eligible criteria that is needed to claim, you are made redundant and won’t be able to make repayments on your borrowing, you’re sure you understand the limitation involved with this type of cover, and you take time to shop around to compare prices and cover.

If you get a PPI policy, make sure you pay a reasonable price.

Your monthly premiums will depend on how long to wait before your policy pays out, and the maximum number of payments you are able to claim;

Here are some illustrative premiums (based on a 40 year old employee)

Type of cover Monthly loan repaymentProtection to run forWaiting time before policy pays outMaximum number of payments per claimIllustrative monthly premium
Accident, sickness and unemployment£1005 years211 days6£1.60
Accident, sickness and unemployment£1005 years91 days12£4.92
Accident, sickness and unemployment£1005 years15 days24£10.92

Source:  Money Advice Service PPI comparison table (August 2012)

Posted on Thu 29 May 2014