Income payment protection insurance
Income Protection from British Insurance
Income protection is a confusing name as far as insurance product goes. Income payment protection insurance cover is actually a relatively short-term insurance product that supplements a portion of monthly income for full time workers who become unable to work due to an event out of their control. Events covered by this payment protection insurance (PPI) product include involuntary redundancy, accident, or prolonged illness. Typically, it does not replace the entire monthly income, but covers a good portion of it.
This is compared to income protection which is more of a long-term insurance that offers benefits up to retirement in some cases but only covers incapacity in most cases. It is also more expensive in terms of monthly premium costs.
For the purposes of this article, we are referring to the short term insurance - income payment protection insurance where the benefits are paid over a 12 to 24 month period to insured following the covered event. The amount of how long the policy will run for varies due to the individual provider’s policy terms and conditions. Many people depend on the payment cover as the only source of short-term unemployment assistance available, as State assistance can be financially limited and subject to you meeting criteria such as having little or no savings. .
Income protection payment cover is actually one of three common types of insurance that falls under an umbrella of products that make up the payment protection insurance industry. The other two are mortgage payment insurance and loan payment protection. The core benefits and covers of each type are the same. There are some distinctions among the payment protection in terms of their purposes and some of the features offered by each.
Mortgage payment protection insurance (called MPPI for short) is similar to income protection but it is intended to help the insured meet their monthly mortgage obligations. Homeowners risk repossession of their homes if they are unable to meet their debt obligations. This is a frightening thought to many people faced with the possibility of unemployment. While mortgage payment cover does not always replace 100 per cent of normal monthly income, it does help protect the most important asset to the insured. Mortgage payment insurance is often sold in combination with mortgage products by banks and lenders.
Loan payment insurance is similar to mortgage payment cover, and as national consumer debt and credit card balances continue to rise, Brits need income to help pay their monthly obligations. Loan payment cover typically provides for full debt protection and it also often comes with a modest provision to cover some monthly expenses. As with mortgage payment insurance, loan payment protection plans are routinely sold in combination with many types of loan products. This packaging of loans and insurances has actually drawn the ire of consumer groups because of some common mis-selling tactics employed by bank and High Street lenders.
Consumers have traditionally been at the mercy of institutional payment insurance sellers because they have lacked knowledge and awareness of the protection and its sources. Many consumers have the protection and do not even realise it. Lenders sometimes manipulate borrowers into believing they have to by their payment insurance in order to obtain the loan they desire. Even more unscrupulously, some lenders package their insurance premiums into loan repayment costs and hide the details in the fine print of disclosures. Unwitting borrowers do not even realise how significant payment cover expenses are because they are spread deceptively over the repayment of the loan. This makes their monthly impact appear lower.
In 2005 the Citizzen’s Advice, the consumer group, brought a super complaint to the Office of Fair Trading (OFT) on behalf of consumers. Along with the aforementioned product packaging mis-selling allegations, the complaint charged some sellers with selling payment insurance to people ineligible to collect benefits. Retired people and part time employees cannot collect the monthly payout because of the full time requirements of payment cover plans. Additionally, people with pre-existing medical conditions have been targeted but cannot always benefit.
The result of the complaint was an investigation by both the OFT and the Financial Services Authority (FSA). The FSA used the results of its investigation to punish companies it found to be using unfair selling tactics. It imposed serious fines and sanctions. This has contributed somewhat to lower institutional use of unethical practices. The OFT continued its research by appointing the Competition Commission to look further into the industry. It is waiting on the results of the ongoing investigation.
Perhaps most importantly, consumers are now more aware of some of the deception linked to loan and insurance packaging and other mis-selling techniques. They are also more aware that they are not obligated to by insurance protection from their lender. In fact, the best insurance value regularly comes from independent insurance providers.
Insurance specialists typically offer consumers among the best product and rate options. Specialist provider premiums are normally 40 to 80 per cent less expensive than those offered by banks and High Street lenders. Standalone providers also maintain a reputation for great ethical credibility because of their typical membership in an industry association. Industry associations maintain high standards of business conduct in order to create a collaborative improvement in the reputation of independent brokers as insurance providers.
Brokers are extremely easy to approach as well. With the expansion of the internet, most leading standalone providers offer information and access to quotes through their web sites. It is quite obvious consumers are much more empowered in the payment insurance industry than ever before.
However, many consumers are still not aware of the great benefits of income protection payment insurance. There is growth in use, however, as 60 per cent of new homeowners are acquiring some type of protection. This is a significant boost than only one in three homeowners currently has protection. Part of the increase, along with consumer awareness, is due to a broadened understanding that the State is offers little to no assistance for unemployment.
Brits must take responsibility for their own short-term protection needs. Whether the payment insurance takes the form of income protection, mortgage protection, or loan protection, payment insurance cover is vital to help many consumers sustain themselves during temporary periods of unemployment or prolonged sickness.
