Payment Protection Insurance from British Insurance
You may have heard of payment protection insurance, but be unsure about what it does, or perhaps know roughly what it is without knowing if you really need it. Some of us have absolutely no clue what it is, but want to find out more. This simple guide should tell you all you need to know.
We all think it won't happen to us – but it can. You suddenly develop a long-term illness without a clear time frame for recovery, or perhaps have an accident, suffering injuries which could mean months or over a year of being unfit. One day you could be at work as usual when your boss calls you into a meeting, hands you an envelope, and says 'sorry, but we are going to have to let you go' – the dreaded notice of redundancy is all there is to read inside the envelope.
All of these nightmare but entirely common scenarios leave you without an income. Without pay there is no method of paying rent, household bills, mortgage payments, loan repayments, and even no method of buying food, fuel or perhaps even the bus fare to an interview.
Of course, you may get a redundancy package and there is statutory sick pay – which currently stretches to a maximum of 28 weeks in the UK. There is always incapacity benefit and job seeker's allowance, paid by the Government, but both are unlikely to even come close to matching your regular outgoings.
This is where payment protection insurance (also known as PPI for short) comes in – the term is a broad tag for policies which kick in and pay you a sum intended to replace your lost income so you can continue paying the bills and avoid disaster in the event of suffering from prolonged illness, injury or being out of work through no fault of your own. All you need do is pay a small premium to your chosen insurer each month.
One Phrase - Multiple Cover Options
Typically, payment protection insurance is something of an umbrella phrase for mortgage payment protection, loan payment protection and income payment protection insurance.
Usually you will decide what percentage of your income you want covered – perhaps a certain slice of your regular income will cover most of your outgoings, or maybe you will feel more comfortable with most of it covered, though obviously this will affect the price of your premium and will be up to the insurer’s set limits.
If you need to make a claim, with income payment protection insurance there is no restriction on what you use the money for in the same way your employer poses no conditions on what you spend wages on.
However, for some people a general income payment protection insurance policy will be too broad for their needs, and possibly simply too costly. Perhaps there is one particular payment they really are worried about not being able to make. Depending on the individual, it could be remaining able to continue meeting the monthly repayments of their mortgage or a particular loan that is most important to them.
Cover the Mortgage, the Loan, or the Job
Mortgage protection insurance will cover what for many people is the single biggest monthly outlay. It is worked out by adding together things like monthly repayments, plus the cost of cover for buildings and contents insurance.
There is also loan payment protection insurance, which covers the payments made on one particular or several small debts, perhaps a large bank loan or several credit card bills. Again, for a small monthly premium, the cover will ensure your repayments are met should you lose income through being unable to work through ill health or involuntary redundancy.
Redundancy cover is also fairly self-explanatory. This policy will only kick in to cover your income should you be made involuntarily redundant. This could be appropriate if the individual works for a company they feel will not always be able to offer them employment. You may fear your employer may end up in financial difficulty and no longer be able to keep you on.
A Market With 'Issues'
There have been well-publicised issues regarding the UK payment protection insurance market. In February 2007 the Office of Fair Trading referred the market to the Competition Commission for an investigation. Also in the same year the Financial Services Authority fined five big-name high street firms for mis-selling policies, saying they failed to reach standards by being over-aggressive with the selling of such policies. It also said many PPI policies sold by the firms were overpriced and not suitable for some of the customers they sold them to. The findings of an in-depth review from the Competition Commission are expected to be revealed in 2009.
Who to go With?
So, that said, what are the current options for someone wanting to buy cover for their regular payments? Firstly, given the above issues, it should be said that some providers do peddle their own policies to customers who are taking out a mortgage or loan from them. Beware – these are often poor value; do not be tempted or pressured to take out a policy just because the person offering up a mortgage or loan wants you to.
Standalone providers can often be a better bet – they can offer policies around 80 per cent cheaper on loan payment cover and 40 per cent cheaper on mortgage payment protection compared to the policies offered by high street names.
The independent Citizens' Advice Bureau also recommends people check their sick pay entitlements at work, listen carefully to loan terms which are read over the phone, check the circumstances policies cover, and examine finance agreements to check cover is not included automatically before signing for anything.
So remember the basics – payment protection insurance covers a wide sector of cover but the principle is the same – it's all insurance that protects you against being unable to pay bills and payments through injury, illness or redundancy. It's also something of a jungle out there, but there are good options for the careful customer.
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