PAYMENT PROTECTION INSURANCE INFORMATION LIBRARY

What is Payment Protection Insurance, Income Protection and Mortgage Protection? Find out the answers to all the essential FAQs below.

What is Payment Protection Insurance?

Payment protection insurance, also known as PPI or Accident, Sickness and Unemployment insurance (ASU), is a type of insurance designed to cover you if you lose your income due, as the name suggests, to an accident, illness or being made redundant. A PPI policy can protect you and give you a payout for up to a year (12 months) in tax-free monthly payments.

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What are the Types of PPI?

Payment protection insurance covers a few sub-types, these are:

Mortgage Protection:

Insurance cover for your mortgage loan payments

Income Protection:

Insurance cover for your income – this can include your utility bills and food costs

General PPI for Loans:

Insurance cover for your loan or credit card payments

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Can Anyone Get PPI?

In general you must be in employment and either a tenant or homeowner in order to be eligible for PPI.

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Who or What is not Covered?

Before you take out a PPI policy, make sure you are clear on the conditions of the policy. As with most forms of insurance there are exclusions or clauses which may affect you – so go over them carefully or speak with your insurer / financial advisor to make sure you are fully aware of what is and isn't covered.

Here are some aspects that are worth considering:

  • Self employed people may have different cover levels or exclusions. The same goes for contract workers
  • If you have an existing medical condition, it is highly unlikely that you will be able to make a claim for it
  • Most PPI policies have a maximum age for cover: 65 years is standard
  • Most policies must be in action for a period of 120 days before you can make a claim for unemployment
  • If your company has announced job losses or a restructure within four months of your policy, you may not be able to make a claim
  • Students and the unemployed are unlikely to get cover

There are various other exclusions and clauses for each policy, including for claims from stress and back-ache. These are the most common work-related problems and you may only be able to claim for them if you can prove your case with radiological evidence or even an official report from a psychiatrist.

Most PPI policies are covered by a 30-day cooling off period. That means you can cancel your contract in that time and receive a full refund within this set time.

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How Much does PPI Cost?

This depends largely on the provider you use. As with any form of insurance, prices vary a lot – so shop around, compare policies and take your time! Prices also vary according to your age and circumstances – or risk levels.

For instance, if you are a healthy young person in a comfortable position career-wise, your premiums are likely to be cheaper than if you are at a higher risk of suffering an illness or losing your job. Expect to pay anything from £20 to £40 a month.

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Is PPI Sold Alongside Loans?

Up until recently, PPI was sold mainly alongside loans or credit cards as a way to protect the borrower's repayments. However, due to some controversy around the way in which PPI was being sold – often in a far too aggressive way – the rules on how it is sold are being changed.

Lenders are to be banned from selling PPI policies from the time you take out your loan or credit card, meaning borrowers will be able to shop around and find the deal that suits them best.

PPI does not only have to protect your loan or credit card: it can also cover your income – this is known as income protection. This includes your rent payments, food costs and regular household bills (including council tax).

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What About Mis-Selling Stories?

In recent years, payment protection insurance has come under a negative light due to instances where high street lenders were selling policies without clearly explaining what they were for. In many cases, customers realised too late that the PPI they had did not adequately cover them when they came to make a claim.

In addition to this, the costs of PPI would be added to the loan and interest was charged on the premiums so overall it became an expensive insurance policy to have.

With the new rules on how PPI is sold (see above), and the fact that PPI is now not added to the cost of a loan, consumers are more trusting of this type of insurance. As an incredibly useful form of insurance, this is great news for borrowers, homeowners, tenants and those who want to protect their valuable income.

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