Payment protection insurance or PPI is taken out as cover for a loan or financial arrangement. The idea is for your loan repayments to be covered in the event that something like sickness, accident or redundancy prevents you from making payments for a period.
Of course, taking out payment protection insurance provides peace of mind, and that’s why these policies have been popular. However, if you are thinking of taking out this cover, there are some things you need to bear in mind.
1. Make sure you would actually be eligible to claim under the terms of the policy. It’s no good paying for a policy to protect your loan if it wouldn’t benefit you. If you are in certain types of employment such as agency work, seasonal work or contract work, you would be ruled out from being able to claim. Also you wouldn’t be eligible if your job is under specific threat. And if you are unemployed, it just doesn’t apply to you anyway.
2. Remember that payment protection insurance is not compulsory. Some people take out cover because they believe it will improve their chances of getting the loan. However, if lenders deliberately give you this impression, they are committing an offence and you would have a valid claim for mis-selling.
3. Don’t forget that if you do take out payment protection insurance, you do not have to purchase it from the provider of the loan. This should free you up from a whole lot of pressure and give you the opportunity to shop around and choose the policy that’s right for you.
4. If you are confused about how to find a policy that would suit you, you can find guidelines on the FSA (Financial Services Authority) web site. Alternatively (or in addition) you can consult a broker. The fact is that if you purchase a policy from the loan provider or some other providers, they almost certainly will not tell you if the policy is not suitable for you – it is simply a commercial transaction to them.
5. In addition, payment protection insurance policies differ enormously in how much they cost. It usually happens that the most expensive ones are those purchased from the provider of the loan. This may be because they can combine the payments with your loan repayments so you don’t actually realise how much you are paying! More often than not, a stand-alone policy will be better value. So do shop around.
In the last couple of years the government has tightened up the regulations on selling payment protection insurance so you have more protection than you used to. But of course those who sell it still want to make a profit – that’s what they’re in business for. So the onus is very much on you to make sure you get the best value.