Payment protection insurance – choosing a policy
Payment protection insurance, also known as PPI, can help you keep up with a loan or credit repayment if you are made redundant, or find yourself unable to work due to illness or accident. Finding the right policy can provide you with the reassurance that you will be able to meet the repayments in the short-term if something goes wrong. You might decide to get professional advice from a financial adviser to help you choose a policy.
PPI policy features
PPI policies might seem complicated, but it’s important to understand what you’re signing up to. We’ve put together a list of the main points you need to consider.
Length of pay out
The longest possible time a PPI policy will pay out is up until the policy ends.
The shorter this period of time the cheaper the policy will be. It will also stop paying out if you become well enough to go back to work.
If you take out a PPI policy to cover a credit card debt and then get made redundant, your policy will cover monthly repayments for that debt.
It will continue to pay out until you find a new job, or the policy ends.
Amount of pay out
You choose a policy which pays out a set amount to cover the loan or credit repayment that you have taken out.
For example, if you decide to cover a loan for a car over five years and then become ill and unable to work, your PPI policy will cover your loan repayments.
It will do this until you start earning again, or the end of the policy in five years.
What do I need to think about before buying PPI?
Factors that influence the cost
- The amount you want to cover
- How long you want to be covered (term)
- Whether you smoke or have previously smoked
- Occupation – the more manual or specialist the higher the cost
- Health (your current health, your weight, your family medical history)
- The excess waiting period before you’re paid (deferred period) which is usually 90 days (see When does it pay out? below)
When does it pay out?
PPI policies usually pay out after 90 days. This period is known as an excess or waiting period.
You need to make sure that you could cover your loan or credit repayments during this time.
You might be able to do this through:
- Your savings
- Your employer’s sick pay
- Your statutory sick pay (six months)
Who wouldn’t be covered?
If you’re unemployed (and have not been made involuntarily redundant) or retired when you submit a claim it is unlikely to be paid.
If you’re self-employed or a contract worker there might be some additional conditions in the policy that you’ll need to meet.
For example, you might be asked to provide more evidence about your income. Check the policy wording carefully if this is might to apply to you.
Pre-existing medical conditions
Most PPI policies do not ask for your medical history when you take the policy out but pre-existing conditions, (that is health problems that you had before you took the policy out) are not usually covered.
Claims support services
Some policies include claims support services which provide help and support, such as helplines and information about your medical condition or legal advice in the event of a claim, to help return to work as soon as possible.
Most complaints about PPI are about whether or not it was the right type of policy to have taken out.
Advisers can take you through the details of the policies available and make sure you pick the one best suited to your needs.
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