Any time you are looking for a credit arrangement on a new car, a new three-piece suite for your living room, or a new flat-screen TV, you are likely to be offered loan insurance cover or PPI (payment protection insurance).
What is loan insurance cover? It’s a policy you pay into, which is supposed to protect you if you find yourself unable to keep up the payments for any reason.
If you’re a careful person you will probably say “yes” when the salesperson asks you something like “Would you like to protect your payments?” It will probably all be a bit rushed, so you may not realise till you get home, or receive the paperwork through the post a few days later, that it wasn’t actually something you really needed.
So why might you need loan insurance cover?
• If you are in regular permanent employment it could benefit you. But be careful – if there is a prospect of redundancy at the time you take out the loan, and it can be proved that you knew about it, the policy may not pay out if you do become redundant.
• Loan insurance cover would be a good idea if you have a mortgage – or your loan is secured on your home – and you would be at risk of losing your home if you got behind with the payments.
• It could help you if you are in reasonably good health, but your employment doesn’t have sick pay arrangements that would ensure you were paid if you had to be off sick.
So if you are in a situation where you are employed, but redundancy, illness or accident would make it difficult or impossible for you to keep up your payments, loan insurance cover is certainly something you should consider. However, don’t just assume you need it because the salesperson tells you! There are many reasons why you might have little or no need of loan insurance cover – it’s up to you to check.
• There is no point in taking out a policy at all if you’re retired. It also probably won’t apply to you if your employment is casual, temporary or seasonal.
• If you are in a job with a “no compulsory redundancy” agreement and good sick pay, such as civil service, teaching or local government, you don’t really need loan insurance cover.
• You need to check the exclusions in the policy (these will be in very small print). Most policies exclude certain medical conditions – if you suffer from any of these, the policy won’t benefit you.
• If you are actually on sick leave from your work at the time you take out the loan, most loan insurance policies will be invalidated. Check carefully before you sign.
• Most policies won’t pay out if you leave your job voluntarily or if you are dismissed.
And finally – remember that no loan insurance cover will benefit you if you fall behind with your payments simply because you are not organising your finances properly!
So remember that just because the salesperson tells you that you need loan insurance cover it doesn’t mean you actually do. If you don’t, there’s no point in paying out for nothing. But if you are sure you need it, consider it carefully – it could be very important.