A Guide to Protection Insurance
In April 2011, independent Protection Insurance provider,
British Insurance, asked people whether they’d bought a financial
‘bail out’ policy to pay their bill commitments if they lost their
income due to unemployment, an accident or sickness.
86% of respondents did not have this cover, suggesting they are
either wary of the product or have little or no idea what it does.
To enable you to understand how this insurance works and how it can
help you, British Insurance, in conjunction with personal finance
comparison site, Moneynet, has put together this simple consumer
What is Protection Insurance?
PPI, also known as Unemployment Insurance or Accident, Sickness
and Unemployment (ASU) cover, is an insurance policy which pays out
if you lose your income - due to redundancy or an inability to work
because of an accident or sickness - and replaces it with tax-free
monthly cash payments for up to 12 months.
This cover has traditionally been sold by credit providers
alongside mortgage, loan or credit card products. However, from
April 2012, lenders are banned for seven days from selling PPI at
the point you take out your borrowing (ensuring there’s a clear
time separation between the sale of these two products). This gives
you the opportunity to shop around for cover from intermediaries
and direct providers via the internet, to ensure you get the best
deal you can.
Many people aren’t aware that PPI isn’t restricted to covering
just your finance commitments; it can also be used to safeguard
your rent payments, utility and council tax bills or even your
monthly food costs.
How does it work?
Providers generally price cover per £100 of monthly benefit –
allowing you to clearly see what you’re paying each month and know
what the return will be should you need to claim. Simply work out
how much you need and the provider will calculate the premium. If
the provider doesn’t give you a monthly figure, either ask for one,
or find someone that does.
Policies offer a choice of waiting periods (the length of time
you’ve chosen to wait until money starts being paid directly to
your mortgage provider or into your bank account) - these range
from ‘back to day one’ to 180 days. The longer the waiting period,
the lower the monthly premium.
Who is the cover for?
Anyone in employment who runs a home. Whether you’re buying your
property, renting or in a shared ownership agreement, the financial
consequences of a lost salary are equally severe. Policies are also
available for contract workers and the self-employed, although a
specific criteria must be met, so check your eligibility with the
PPI provider before you buy.
I’m wary of buying PPI due to stories I’ve heard in the
We understand this and it’s one of the main reasons we’ve put
together this Guide to try and make PPI clear to people, and so
that they don’t pay for something that’s not suitable. In the
past there have been instances where high street finance providers
have sold PPI without explaining what is and isn’t covered. Also
the PPI cost used to be added to your loan (known as single premium
PPI) and you were charged interest on your premiums which made it
an expensive form of insurance.
Now you just pay your premium on a monthly basis totally
separate from your borrowing and are free to cancel at any time.
It’s important that people don’t disregard PPI as it can really
help you manage your finances if you find yourself unable to
What isn’t covered?
We are not saying that PPI is right for everyone and there are
some important conditions you should be aware of before deciding to
take out this cover.
• If you’re a contract worker or self-employed certain
conditions apply so check the policy exclusion before you buy.
• You will be unable to claim for unemployment until your policy
has been up and running for an initial period – typically 120
• You will not be able to make a claim for a medical condition
that you have suffered
from prior to taking out your PPI policy (pre-existing
• You will be unable to claim for unemployment or sickness cover
until you have been off work for a minimum period – this will vary
between providers but is usually from 30 days. It also depends on
the waiting period you have chosen.
Take a look at our short
video about waiting periods.
• Claims resulting from back-ache and stress (the two most
common reasons for
workplace absence) will usually only be paid if radiological
evidence or a psychiatrist’s diagnosis is received and that it’s
not a pre-existing condition.
• Maximum age for cover is usually 65 years.
• Maximum monthly payout is usually restricted, either to a
percentage of your monthly income or a maximum monthly limit.
• You have a 30 day cooling off period when you take out your
PPI policy and have the right to cancel and receive a full refund
during this time.
Why it’s important to you?
PPI is an effective way stop bills spiralling out of control at
a time when money is tight. It can prevent you having to use up
your savings or getting into debt, so why leave things to
Whilst state support is available, for many, it is unlikely to
be sufficient. The weekly
Jobseeker’s Allowance of £67.50 is barely enough to cover a food
bill and it’s been found that less than 2% of households qualify
for the Government’s £40 a week Income Support for Mortgage
Interest scheme (recipients are means-tested). PPI on the other
hand cover allows you to take control of your finances.
When should I buy PPI?
Give it some careful thought now; just think how you’d manage to
meet your monthly repayments if you were unable to work – don’t
leave it until it’s too late. For example, if your company
announces a programme of job losses, restructures or mergers with
another firm within four months of your policy start date you won’t
be eligible to claim. In other words, don’t wait for your
employment situation to change before you think about buying a
What’s the cost?
Prices vary so it’s worth shopping around. For example, a 30
year-old looking to receive £1,000 a month from an accident,
sickness and unemployment policy, opting for back to day one cover,
will pay £40 a month with British Insurance, £49.50 with
Paymentcare and £50.10 with Columbus.
What happens if I need to make a claim?
You will find a contact number on your policy and advisers will
explain the next steps. If you’re making an unemployment claim,
you’ll need to register with Jobcentre Plus – the date you register
is the date your claim starts. For accident or sickness claims, a
doctor will need to provide details, and again, the start of the
claim will be the date the doctor has certified you’re unfit for
If you have any questions or perhaps need some further
clarification on anything in this guide, please telephone us on us
0844 346 0140, email firstname.lastname@example.org
or chat online to one of our customer services team.
*Internet research undertaken by British Insurance on 10
August 2011 – obtaining quotes from major PPI providers.
This guide is provided by British Insurance and Moneynet and
is intended to provide a high level overview. When buying payment
protection insurance, always read the insurer documentation to
ensure the cover is appropriate for your needs.