Payment Protection Insurance
What is this?
Payment Protection Insurance(PPI) is a policy which is intended to maintain committed monthly payments in the event of becoming unemployed or unable to work through illness or injury. Typically PPI is offered with secured and unsecured loans and often added to the loan as a lump sum. There is nothing inherently wrong with a Payment Protection Insurance policy, however, they are often sold without a proper analysis of the needs of the borrower and tend not to be the most cost-effective means of protecting the borrower’s ability to make repayments..
Who is it for?
It is not necessary to be a home-owner to be protected by a Payment Protection Policy and the policy, like the Mortgage Payment Protection policy, can provide an invaluable safety net for employed borrowers to ensure that their payments are maintained if they lose their job or are unable to work for medical reasons. The term of the policy is usually restricted to the term of the loan, which may be secured. There is also a maximum cover age of 65 and with a maximum pay-out period of 12 (or 24) months. PPI policies can be paid for monthly – but this means that cover ceases if you stop paying. They are usually be paid for by a single premium, usually at the start of the loan, however, this is usually an expensive way of paying as it is normal to add the cost of the premium to the loan so you pay interest as well. For this reason, there has been much criticism of PPI policies in recent times. Monthly paid PPI cover is a quite cost-effective means of providing basic protection for a short period.
Who is it not for?
This insurance is not available beyond the age of 65. Some insurers do not offer policies if you are engaged in some professions. Certain pre-existing conditions may be excluded from the insurance policy. If you are self-employed, the only way you can claim on the ‘Unemployment’ provision is for your business to be wound up ‘involuntarily’, in other words – forced to close by a court. The policy cannot be used to protect payments on a Buy to Let or Commercial property. The monthly protection amount is also restricted so, if you have a large loan, an Income Protection policy may offer more suitable protection
