Everything You Need To Know About Payment Protection Insurance
Have you ever run across the term PPI when making a large purchase or applying for credit? Perhaps you have seen the term in paperwork but never knew quite just what it meant. PPI has been around for quite some time, but in recent years, there has been more pressure placed on consumers to invest in it. If you are wondering what payment protection insurance actually is and if you need it, we are here to help. We will cover everything you need to know about payment protection insurance, when you need it, how to buy it and what you need to know.
What Is PPI?
Payment protection insurance is often referred to as simply PPI. This is a form of insurance intended to help users maintain regular payments on their loans in the event they have a dramatic change in circumstances. In most instances, PPI will cover short-term credit card payments and loan payments. A PPI will kick in if you are in a serious accident that leaves you unable to work. It will also be triggered if you are suffering from a serious but temporary illness. There are a couple of other scenarios PPI’s will cover, however, it is important to check the fine print of each policy as they will differ between companies.
The purpose of payment protection insurance is to help people stay out of debt or default. The coverage will help cover mortgage payments, car payments, and other critical loans. It is only intended to be a short-term solution and there is a fixed date of expiration on all payment protection insurance payments. There has been a lot of news recently surrounding PPI and the mis-selling of policies. Though there are some companies out there that sell useless policies, it is a good tool to have if you are securing a large loan.
Do You Have To Purchase Payment Protection Insurance?
Payment protection insurance offers short-term protection for those who suddenly have a disruption in their regular income. Although it is an effective way to add an extra layer of protection when securing a large loan, there is no legal requirement to purchase a PPI policy. PPI is usually offered by the same bank or company that is extending you the initial loan. Mortgage companies, credit card companies, and even loans for home appliances often come with an offer of extra PPI. Basically, any loan that is over a certain amount, or will take 6 months or more to be paid off will trigger the suggestion of purchasing a PPI policy. These policies are not obligatory, however, a well-timed policy can help you to keep from falling behind on payments if you are out of work. This will keep your credit from taking a negative hit, and it will help you keep your account in good standing until you are back on your feet.
What Does Payment Protection Insurance Cover?
PPI policies do not cover all of your outstanding loans. Each policy will cover a specific debt and that too only under specific circumstances. When you file a claim on your policy, the money will not come to you, instead, it will be paid directly to the lender or company holding your debt. The money from the claim is unable to be used for any other purpose. The majority of payment protection policies are offered by the company or bank that issues the loan, and as such, will basically pay back themselves in the event of a claim.
Along with loan or debt-based PPI policies, you can purchase a stand-alone PPI policy. This is similar to car insurance, health insurance, or homeowners insurance. A stand-alone payment protection insurance policy will help cover your lost income for a set time period. Generally, these types of PPI policies have a claim payout duration that falls between 12 and 18 months. The maximum amount a stand-alone PPI policy will cover is 65% of a person’s pre-tax income. While this may not be enough to pay all of your bills, it will usually be enough to make the minimum payments on your main debts.
Payment protection insurance policies are generally very specific in what situations are covered. If you are afflicted with a debilitating illness or if you become disabled and unable to work, your PPI will kick in. You can add an option to your policy regarding unexpected redundancies, but they are not automatic options on every policy. Some PPIs will offer coverage if there is a death in your immediate family, or if the policyholder has died. Again, this is not standard for every policy, so it is important to read the fine print before making a purchase. If a person has to stop working in order to care for a sick or ailing person, PPI will often be triggered.
What Doesn’t’ PPI Cover?
Payment protection insurance policies sold with specific products will generally have a list of what is covered, and what is not. Stand-alone PPI’s will also have their own list of acceptable claims that will be covered. We can’t stress enough that it is important to look at your policy before you purchase it to make sure you are aware of what will be accepted as a claim and what won’t. That being said, there are a few general circumstances that typically won’t be covered by a payment protection insurance policy.
The initial exclusion period is about 90 days. During this time a PPI won’t cover expenses. You will need to make sure that you have at least three months’ reserve for all of your main bills in addition to holding a PPI policy. Many people are either unaware or simply don’t plan their finances well enough to cover the initial exclusion period. PPI policies will not cover pre-existing conditions and certain ailments are also excluded. You will need to check each policy to see which conditions are covered, and which are specifically excluded. Retired people and unemployed people are also not eligible for payment protection insurance.
Who Should Buy Payment Protection Insurance Coverage?
Now that you understand a bit more about how payment protection insurance coverage works, now you may be wondering if it’s right for you. PPI policies are an excellent way to protect your credit and your investment. Life has a habit of being predictable and throwing some complex challenges into the mix when they are least expected. Payment protection insurance is a way to mitigate the challenges that come with being out of work, getting sick, or getting in an accident. That being said, it is a good idea to consider your needs and your situation before buying a PPI policy.
Larger debts should be covered by a payment protection insurance policy. The loan on your home, for example, is an ideal debt to cover. Your car note, bank loan, and certain credit cards should also have PPI coverage. The amount you owe will be the main factor in determining which debts to cover with a PPI policy. Long-term loans are ideal, however, short-term loans can also be covered with a payment protection insurance policy. This safety net will allow you to keep making your payments even after you have lost your source of income.
It is always important to check the coverage levels and to understand under which circumstances a claim will be paid. Some payment protection insurance policies offer comprehensive coverage, while others leave some gaps or loopholes that can leave you or your family in the lurch. The rules surrounding each payment protection insurance policy are typically very specific, so always double-check to ensure that you are properly covered.
Who Should Not Purchase A PPI Policy
Some categories of people should avoid buying payment protection insurance. This is generally because they won’t be covered in the event of a claim, even if their policy is paid and up to date. Those who work for themselves or who are classified as temporary workers will not be able to file a claim for PPI coverage. Those in a time of employment, rather than redundancy, will also not be able to make a claim. If you are not employed at the time, you initiate a loan, a PPI policy will not be valid, even if you secure gainful employment later down the line.
Aside from the conditions listed above, not everyone actually needs a payment protection insurance policy. Workers who are redundant, but given a pay package not only won’t be eligible, they will also have the funds needed to make all of their payments. The majority of companies who employ people and end up classifying their workers as redundant will offer pay packages. These packages generally cover three to six months worth of salary in which a person should be able to find new, gainful employment. If you are receiving a payment package, your ability to pay your bills will not be affected. As such, you have no need for additional payment protection insurance. Those on paid sick leave are also not in need of PPI coverage as their salary will not have been affected.
Can You Cover Your Payments Without PPI Coverage?
People that have enough saved up to cover their expenses for several months don’t need to take out PPI coverage. Payment protection insurance plans are not always affordable. If you are tight on funds, adding another bill may just put you over the edge. PPI policies are not free, they have a monthly cost just like any other insurance payment. If you can make your repayments for at least three months from your savings, you should skip out on adding another bill to your docket. While borrowing money is never the first suggestion, if a loved one is able to help out with your repayments, then it is also not necessary to secure payment protection insurance for your debts.
Things To Consider Before Buying PPI
Before purchasing a payment protection insurance policy, there are several things that you need to consider. The first is that you should take the time to read the details of the policy that you are being offered. Every insurance company offers slightly different terms in their policy, so it is important that you are aware of the terms before making a commitment. If you are not clear on something written in the policy, as the insurance broker or your independent financial adviser to explain to you in terms that are easy to understand. Some PPI policies have ambiguous language, failure to understand everything written is not the fault of the consumer. Rather, such language is often employed by insurance providers to gloss over less than favorable terms.
Think about your employment status before taking out a loan and protecting it with a PPI policy. Most insurance companies will not extend payment protection insurance to certain types of workers. Temporary workers, contract workers, and the self-employed generally do not qualify for payment protection insurance. People with plenty of savings, or at least enough savings to cover three to six months of basic payments can make do without PPI coverage. At the same time, if your finances are already stretched thin, adding another bill, such as a PPI coverage bill, may not be the best option.
Have You Been Sold A Useless PPI Policy?
In recent years there has been a lot of reports of PPI mis-selling in the UK. Many of these cases resulted in compensation, but plenty of people have been left in the lurch. Throughout our post, we have repeatedly stated that it is important to read your policies each and every time you plan to purchase PPI coverage. Many people who were mis-sold payment protection insurance were under the impression that it was mandatory. Others didn’t understand or were not told what their policy actually covered or did not cover. It is never compulsory to take out PPI coverage when you apply for a loan, even if it is offered.
A percentage of those mis-sold payment protection insurance was never actually eligible to file a claim. Unemployed, self-employed, and temporary workers, for example, are not eligible for most, if not all PPI coverage plans. You can still apply and be awarded a loan as a temporary worker, self-employed worker, or even if you are unemployed if you have assets to back your loan. However, you are still not eligible for PPI coverage, which was often never told to consumers when a policy was presented. Even those who suffer from certain medical conditions are not eligible to place a claim on their PPI policy.
Some individuals may have been mis-sold excessive coverage. For example, although payment protection insurance is not mandatory, many banks include it in their loans as part of a standard procedure. Many people were sold an additional policy on top of the one already included, though you can legally only file a claim once, regardless of how many policies you hold. These are only a few of the common ways PPI coverage was mis-sold over the years.
The instances of payment protection insurance mis-selling have decreased dramatically, however, they still occur occasionally. If you think that you have been sold a policy that you do not need or do not qualify for, there is help available. First, ask yourself a few questions to determine if you may have been taken advantage of:
- Were you told PPI is mandatory?
- Did the seller or lender explain your policy coverage in full?
- Were you aware you were buying a PPI policy?
- Do you need payment protection coverage?
- Are the terms of your PPI relevant to your circumstances?
- Did the broker inform you of the lender commission of the PPI?
- Are you eligible to make a claim on your policy if needed?
If you think you have been taken advantage of, inform your PPI policy provider right away. Make sure to notify them in writing. They are required to respond and acknowledge receipt of your complaint within five business days. The insurance company then has eight weeks from the date of receipt to address your complaint. In the event you do not hear from them regarding your complaint, or if you do not agree with their solution, there is help available. The Financial Ombudsman Service will assist you for up to six months following the insurance companies ruling on your complaint.
Payment Protection Insurance Buying Tips
Payment protection insurance is a smart way to protect your payments if you happen to find yourself out of work. This can be due to an accident, getting laid off, or even an unexpected illness. There are a lot of PPI options out there and knowing how to get the best value for your buck will ensure you are properly covered. We have a few tips that can help you make smart policy purchasing decisions.
Keep in mind that your monthly PPI cost will depend on the level of coverage you want, paired with the type of debt you seek to secure. The cost will also vary depending on your wait time before policy payouts and the total number of payments that can be claimed. Make sure that you check your eligibility prior to committing to a policy. Don’t feel pressured to accept a policy, allow yourself time to read the fine print. Never be afraid to ask for clarification if there are sections that you don’t understand.
Not all people and situations are covered under PPI. Make sure you know which claims can be made, and which are ineligible. Always shop around to get the best price on PPI coverage. The lender who is financing your loan may offer you a PPI policy, but you are free to secure your own policy from another provider. Most payment protection insurance policies are taken out to help cover mortgages, car payments, and credit card debt. It is important to pay attention to how much coverage you buy and how long it will last once a claim is filed. Most policies have a one-year payout, though some higher-cost PPIs will offer two years of claims payouts.
Always speak with an independent financial advisor when shopping for payment protection insurance. They will be able to help you choose a policy that fits your needs and your budget. They can put you in contact with a reliable insurance broker or connect you directly with insurance companies offering PPI coverage. There are also comparison websites where you can choose from several insurers, just make sure to double-check their reliability before making a commitment.
Always be honest when filling out your application for payment protection insurance. Most PPI claims are paid out, but if inaccurate information was provided, it is grounds for denial. Always read the fine print before signing the contract. This will ensure that you are aware of what is and what is not covered under any particular policy. No matter where you purchase your PPI coverage, by law you are able to cancel your policy within 30 days and receive a full refund of any premiums paid.
If you have an existing payment protection insurance policy, you may be considering switching to another provider. Keep in mind that most insurance companies have a set number of weeks or months that you have to have paid in order to file for a claim. Switching may seem like it will save you money, but if you are already past your waiting period, it may not be worth the hassle.
Protecting Your Interest One Policy At A Time
We hope our guide to payment protection insurance has been helpful. Always speak with your financial advisor prior to purchasing insurance. PPI coverage is an effective way to protect your credit and your payments in the event of unplanned circumstances, however, it is never mandatory. If you have more questions, we are always here to help.