Payment Protection Insurance Guide
Just what is Payment Protection Insurance (PPI) also known as Accident Sickness and Unemployment Insurance (ASU)? Well, it is insurance that offers protection against the repayment of a debt, be it a loan, mortgage, credit card or some other form of credit agreement. Payment protection insurance or income protection insurance covers the repayments of any outstanding debt if your income stops because of an accident, sickness or unemployment. The length of time the payment protection insurance policy is taken out for is up to you. It can be for one year, two years, five years and so on, however, as you are most probably well aware, the longer the payment protection insurance policy runs for, the more expensive it will be. Usually payment protection insurance policies run continuously, in other words you keep paying the premiums until you no longer need payment protection insurance.Most payment protection insurance policies pay out if you have been unable to work due to an accident, illness or unemployment for thirty consecutive days. It should be noted that some payment protection insurance policies operate a deferred payment of six or twelve months. Also, most payment protection insurance policies only provide insurance cover for seventy-five percent of your income and in a few cases only fifty percent of your income (the thought ‘buyer beware’ springs to mind).
It has to be said that payment protection insurance hasn’t exactly got a good name within the insurance industry, even though it is the third biggest general insurance product sold in the UK after motor and household insurance. In cases where payment protection insurance is coupled with a mortgage, credit card, personal loan or store card, the cost of payment protection insurance can be up to five times more expensive than if you took out payment protection insurance with an independent or stand alone payment protection insurance provider. Beware of the salesman, proposal form or website that will strongly advise you to take out payment protection insurance or (ASU) for your peace of mind, state of health, calmness of nerves, etc, whilst mentioning every possible disaster that awaits you if you don’t. Also be aware of any suggestion that payment protection insurance is compulsory, whereas in fact it is completely optional. It is also very important that you read all the small print as it is not uncommon that some companies attempt to ‘hide’ charges by including payment protection insurance in amongst other payments. Due diligence is always the number one rule when taking out any type of credit agreement.
Now having stated all the negatives, let us look at some of the positive reasons for having payment protection insurance or (ASU). Government statistics showed that from June 2002 until May 2003, 755,000 people were made redundant in the UK. Added to that is the undeniable fact that we are relying much more on credit by taking out mortgages, loans and credit cards. Data from the Citizens Advise Bureau states that the average UK household is 10,700 GBP in debt, and this does not include mortgages. On top of that, about half the UK population have savings of 600.00 GBP or less, so it can be seen just how important it is to cover your debts.
If payment protection insurance cover is what you need, for example, if you are self employed, employed in a job which carries a medium to high risk of injury, employed in an industry which may be subject to redundancies, and carry financial obligations such as a mortgage, or outstanding loan, then payment protection insurance may be the best way of protecting you and your family as state benefit may not meet all your needs, should you fall foul to redundancy, catch some sort of illness or have an accident, all of which could prevent you from earning your monthly salary. If this is the case, then do not despair as there are reputable insurance companies offering stand alone payment protection insurance policies at a realistic price and not the absorbent premium charges quoted by companies that offer payment protection insurance alongside a credit card or loan.
Stand-alone payment protection insurance policies also offer better terms and can be adjusted to suit the needs of the individual policyholder. The cost of the premiums and the amount paid out by the payment protection insurance policy provider will depend on how much the policyholder earns and how soon he/she requires payment.
Before signing on the dotted line for payment protection insurance, make sure that you are eligible for cover regarding the prospective payment protection insurance policy provider’s terms and conditions. Typical stipulations are, for example, ‘Are you between the ages of 18 – 65? Are you in full time employment? Do you work and live in the UK?
Any health problems that you have, may exclude you from payment protection cover; always check with your prospective payment protection insurance policy provider if there are any medical conditions that are not covered by the payment protection insurance policy.
It is most unlikely that a payment protection insurance policy will cover against being fired from your job due to your own fault, so unless you have a very good redundancy package, in which case you may not need payment protection insurance, behave yourself whilst at work.
One final thought is that do you really need payment protection insurance or have you alternative forms of cover, such as a health insurance policy that pays out some ongoing payment, or does the company you work for offer sick pay for long term illnesses. Finally, have you got enough money in the bank to carry you through any long term absence from your place of work, and if so, is it worth considering using that as insurance rather than taking out payment protection insurance.
For those of you that require payment protection insurance, getting the right policy at the right price means investigating, checking out and researching the insurance companies that provide stand alone payment protection insurance policies to ensure you get the right cover for you.
