Income payment protection insurance
Income Protection Insurance from British Insurance
Income protection insurance is one of three common types of insurance sold under the umbrella of products known as the payment protection insurance industry (PPI). It is a short-term insurance policy that kicks in 30 to 90 days after coverage initiation and provides financial relief should the policyholder lose their income due to unemployment or incapacity.
Payment benefits are paid monthly over a 12 to 24 month period, based on the provider plan. To be eligible for benefits, the insured person must be employed full time at the point of the covered event. There are three standard events that are covered by the payment protection insurance products. They are illness, accident, and involuntary redundancy. If any of these occur during the coverage period for an eligible, insured customer, payments begin.
Income protection insurance is intended to be short-term financial assistance for people that are unemployed. Many Brits are not fully aware of the benefits of income payment protection insurance for a variety of reasons. Some people do understand the product benefits or are unconcerned about the possibility of being displaced from work. Others mistakenly believe the State would support their short-term financial needs in the event of unemployment or being off work due to incapacity. This is not the case. Another reason many consumers misunderstand the protection is that it is often confused with a long-term protection known as income protection. This product offers coverage up to retirement for some people. The confusions stems from an overlap of names used to describe both products.
Income payment protection insurance allows for tax free monthly payments of typically up to 50 per cent of the insured’s usual monthly income. For many Brits it provides a huge relief from the financial strain of temporary work displacement. This is especially true for people already burdened by health issues, injuries, or job loss. It is the only source of short-term unemployment support available to Brits.
The second type of payment protection insurance coverage is mortgage payment protection insurance (MPPI). Again, all three of the cover types offer similar benefits and standard coverage of key triggering events. There are some modest differences, however, between the products with regard to purpose and coverage amounts. Mortgage payment cover is intended to support monthly mortgage obligations for the insured. Coverage is typically available for the full mortgage obligation, or up to 65 per cent of monthly income, or 2,000 pounds, whichever is lower. Many covered people are able to keep their homes because of the key assistance that kicks in with this product. Mortgage payment insurance is often sold in combination with mortgage products.
Loan payment protection insurance is the third type of payment protection cover. Again, the core benefits and intent of the insurance is the same, but it can be said that loan protection insurance offers the broadest coverage of the three PPI products. Its purpose is to support all monthly debt obligations of the insured. Typically, eligible coverage extends up to 100 per cent of monthly debt, with an additional 25 per cent of monthly income available for necessary expenses. It does have a maximum monthly payout - usually 65 per cent of normal income, or 1,000 pounds, whichever is lower. As with mortgage payment protection insurance cover, loan payment plans are often sold in combination with loan products, often at a high cost.
The packaging of payment protection products with loan products has long been practiced by leading banks and High Street lenders. This practice is okay, except that many lenders have used mis-selling techniques to take advantage of unwitting borrowers. Some have pressured borrowers into buying the expensive insurance in order to secure a loan. More deceptively, some institutions have not even mentioned the insurance cost to borrowers, but have simply built the premium costs into the loan repayment costs. Rather than breaking down the various loan expenses, lenders have presented the total amount and borrowers are not aware how much the insurance costs.
Perhaps the most unethical selling practices used by some banks and High Street lenders is the practice of selling the insurance products to customers that are ineligible to receive benefits based on the terms of the plan. For instance, retired people, part time employees, or people with preexisting conditions have bought payment cover even though they are not eligible for benefits. Coverage is for full time employees.
In lieu of these mis-selling practices and consumer complaints, the Office of Fair Trading (OFT) and Financial Services Authority (FSA) conducted an investigation into the payment protection insurance industry. The FSA concluded their investigation by fining many companies and imposing sanctions. The OFT appointed the Competition Commission to perform further research to see what practices are still being used and what regulations might be needed. The attention has itself reduced some of the techniques amongst large institutions. However, with the expansion of the internet, many companies are taking their scams online. Consumers need to be cautious when searching for online lenders as some are using the same techniques that have plagued the industry for years.
The good news for consumers is that there is an avenue to get great payment insurance at a low cost through a reputable source. Part of the publicity generated by the investigations has shined the light on independent standalone providers. These are businesses that are focused on the insurance industry, maintain relationships with most of the leading providers, and regularly offer consumers premiums that are 40 to 80 per cent lower than those offered by large institutions.
Consumers need to be proactive with their financial situations. Income protection insurance, mortgage payment cover, and loan payment cover are all great products if purchased at the reasonable rates offered through independent standalone providers. Most standalone providers are members of recognised industry associations that maintain firm codes of conduct for members. This helps the standalone providers promote themselves as reputable insurance sellers. The State has largely removed itself from the picture in terms of short-term unemployment assistance. Brits need to look to a specialist provider for product options and discounts.
