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What is payment protection insurance?

Fall behind on mortgage, loan or credit card payments and you will receive penalty charges, damage your credit score and potentially even lose your home.

Payment Protection Insurance (PPI) is designed to help you avoid this by paying your loan, mortgage or credit card repayments if you fall ill or lose your job. However, the terms and conditions of the cover tend to be very strict and riddled with exclusions. 

Banks have also been criticised for mis-selling policies to people who did not even realise they were taking out cover or would never be able to make a claim.

Over recent years, a number of lenders have been fined for poor PPI sales practices and ordered to pay compensation to all those mis-sold policies. Many have stopped offering PPI as a result.

 
Whether or not you need this protection will depend on your financial circumstances and how much you owe.

Do I need PPI?

A PPI payout could be a financial lifeline if you become unable to keep up with debt repayments due to ill health or the loss of your job. 

Whether or not you need this protection will depend on your financial circumstances and how much you owe. 

If, for example, you have some savings set aside, you may feel that PPI is not needed because you could continue meeting your repayment obligations even if your income dropped.

However, if you are worried about how you would cope financially if you lost your job, had an accident or became ill, PPI can provide valuable peace of mind.

Just remember to check that you are eligible, and are not doubling up on cover offered by your employer. 

People who cannot receive PPI payouts include people who don’t work and even the self-employed, while most insurers will refuse claims due to stress, a bad back or a pre-existing condition that was not mentioned when taking out the cover.

And even those who can claim will need some savings in place to cover the gap between any accident or redundancy, for example, and the policy kicking in.

PPI: your rights

Thousands of people have already received compensation because they were mis-sold PPI policies, with more than 200,000 cases referred to the Financial Ombudsman Service in recent years.

And many more cases are currently under review.

If you believe you might have been mis-sold PPI alongside your credit card, store card or loan, your first move should be to write to the lender concerned.

If, meanwhile, you are not satisfied with the lender’s response — or it has failed to respond within eight weeks — you can then take your case to the Financial Ombudsman Service. Visit http://www.financial-ombudsman.org.uk/consumer/complaints.htm or call 0800 023 4567 for more details.

Finding the best deal

Insurers tend to offer much cheaper PPI than lenders. So while you may be offered PPI when you apply for a mortgage, loan or credit card, it is worth shopping around to see if you can get a better deal.

A standalone policy can also have the advantage of covering all your debts – rather than one specific credit agreement.

The premiums will vary depending on whether you want cover for loss of earnings due to illness or injury, or whether you simply want protection in case you lose your job, so make sure you only pay for the cover you need.

But whatever level of cover you need, MoneySuperMarket lets you compare more than 70 different policies with just a few clicks of your mouse.

 

Moneysupermarket is a credit broker – this means we’ll show you products offered by lenders. We never take a fee from customers for this broking service. Instead we are usually paid a fee by the lenders – though the size of that payment doesn’t affect how we show products to customers.

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