Payment Protection Insurance - What Is It And Do I Need It?
PPI, or Payment Protection Insurance, is a form of cover that will help you make your monthly repayments on a mortgage, personal loan, secured loan, or credit cards if you are not able to work. If you become ill, have an accident, or become unemployed through no fault of your own, then PPI can provide a suitable form of protection.
Depending on the policy terms, your PPI insurer will pay all or most of your monthly payments for a pre-determined period. However, you must prove you are unable to work and that this is a result of accident, illness or unemployment. Also known as ASU insurance, Account Cover or Payment Cover, this type of insurance is generally offered to those borrowing credit. You are not required to take out Payment Protection Insurance, however, when borrowing credit you may want to enquire with your lender or provider what their PPI policy entails and the monthly cost if you do choose to buy this protection.
In addtion, you can buy Payment Protection Insurance from another provider. Shopping online and comparing insurance products and fees may help you find a better deal. Keep in mind that you may not want or need this type of protection and be sure you fully understand the terms of any policy or you may find you are unable to claim on it.
Main Features of PPI:
- This type of cover is generally optional and if you decide not to buy PPI, it shouldn’t affect your application for credit
- PPI is paid out for a specific period of time, typically 12 or 24 months
- To claim on unemployment, many policies require you to be unemployed continuously for 12 months from the same company
- Self employed persons may not be covered, be sure to check with the insurance company if you qualify
- If you have a pre-existing medical condition be sure to find out if this will be covered by the policy before you buy. Some policies may not pay if you have had an illness before, even if you haven't been affected in a while
- Stress, back ache, or other conditions that can prevent you from working may not be covered. Double check the terms before you buy
- Your rights - you have a legal right to cancel the policy and obtain a refund within 2 to 4 weeks of taking out any PPI policy
Before you consider PPI, decide if buying this type of insurance may be to your advantage. For example, when calculating the risks of borrowing a loan or credit card, do you have sufficient savings to repay your debts in the event you become unemployed? Do you have another type of insurance already that may provide this protection if you need it?
Be sure you understand the PPI policy and all that it entails before buying. Most lenders do not require you to purchase this type of insurance so don’t let them pressure you unless you feel it to be necessary. Seek advice if you are unsure and remember you have the option to buy PPI from an independent insurance broker or company.
If you would like to find out more information on Payment Protection Insurance you can visit the FSA consumer protection website.
Published on October 16, 2007
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