Guide to Payment Protection Insurance

Payment protection insurance

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Introduction

One of the main concerns for anyone taking out a loan is whether or not they will be able to meet the monthly repayments if they lose their job or become unable to work due to illness.

Sorted finances make happy families

Falling behind on repayments usually results in extra charges and it will also be noted on your credit file, making it more difficult to borrow from banks and other lenders in the future.

The cover can be used to protect mortgage and credit card payments as well as those on loans.

If you are concerned about the possibility of being unable to make the payments, you can take out payment protection insurance (PPI), which is offered by most lenders, as well as a range of insurers.

If you are concerned about the possibility of being unable to make the payments, you can take out payment protection insurance

What is payment protection insurance (PPI)

PPI is insurance sold alongside loans, mortgages, credit cards, store cards and debt products like car finance agreements. PPI is designed to cover the repayments if your circumstances change and you are no longer able to meet the financial commitment.

However, PPI is often attacked by the press as the terms and conditions of the cover tend to be very strict: Most policies do not pay out for the first 30 days and common exclusions include stress and back pain. Students and the self-employed are also not usually covered.

An investigation by the Financial Services Authority, the financial regulator, uncovered evidence of widespread mis-selling within the PPI industry and five firms were fined as a result.

If you are eligible, it can prove to be a financial lifeline if you do find you are unable to keep up with your loan repayments due to ill-health or the loss of your job

However, if you are eligible, it can prove to be a financial lifeline if you do find you are unable to keep up with your loan repayments due to ill-health or the loss of your job. Even the FSA recognises that this type of insurance does offer some merits.

Clive Briault from the FSA said: "When properly structured, explained and sold, PPI can provide worthwhile cover for consumers against unexpected changes in their personal circumstances."

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About This Guide
  • Published Published:  October 2008
  • Written By Written By:  Clare Francis
  • Written By Topic:  Loans

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