The Benefits of Payment Protection Insurance (PPI)

11-May-2009

If you were suddenly faced with unemployment, how on earth would you cope financially? If you became too ill to work for a prolonged period due to an illness or an injury, what would you do? Having your regular income suddenly snatched away from you is a frightening thought. However, with income protection insurance you can have the peace of mind that you (and your family) will not struggle while you seek alternative employment or get back to full health. 

There are various types of protection insurance available, depending on your needs.  A common type of insurance that is taken out in conjunction with hire purchases is payment protection insurance.

What does this insurance do?

Payment protection insurance, or PPI for short, does what it says on the tin ? it protects your outgoing monthly payments. In the event that you are made involuntarily redundant or become incapacitated, you will receive a tax-free monthly sum which can be used towards meeting specific debts or just to help cover day-to-day living expenses. This income allows you to stop worrying about how to find the money to pay your bills and instead enables you to concentrate on finding a new job or getting well.

Types of cover

You may also hear payment protection insurance cover called ASU, which stands for Accident, Sickness and Unemployment cover.
There are three types of payment insurance. These are:

?    income payment protection insurance,
?    mortgage payment protection insurance, and
?    loan payment protection insurance.

The latter two are both debt-specific and the income from the PPI policy will go towards meeting the monthly repayments of these debts (i.e. your mortgage or loan). For the former, income payment protection insurance is not specific to any one payment commitment, meaning the monthly sum can be used for whatever purpose you wish.

Let?s look at each type of payment cover a little more.

A safety net for your mortgage repayments

If you want a safety net to fall back onto for your mortgage repayments then look at taking out Mortgage Payment Protection insurance (MPPI). The income from your mortgage cover would go a long way to preventing mortgage arrears, something to be avoided at all costs if you do not want to fear losing your home to repossession.

Loan repayment peace of mind

Loan repayments also need maintaining and this is possible with Loan Payment Protection insurance. The income from the policy will allow you to keep on top of your repayments and so you will not be at risk of being taken to court by the lender. Along with this, it will help maintain your credit file as you will be keeping up with your repayments. This is essential if you want to borrow again in the future.

Breathing space in the event of sudden unemployment

Your overall essential outgoings could be maintained with Income Payment Protection insurance. This is a valuable form of cover that gives you the freedom of being able to spend the income provided by your policy as you wish. You can use it to maintain any payments that come your way, making life whilst unemployed or ill a great deal easier, or simply use it for day-to-day living costs such as groceries or petrol.

How much cover can I get?

This can vary from provider to provider, so do check the policy terms and conditions carefully, but typically you may be able to cover up to 70% of your gross monthly earned income.

This income is paid back to you each month for the term of the policy, usually 12 or 24 months after the period of deferment (the time period that you have to wait before a claim is paid) has passed. Again, this will depend on the individual policy.

As you can see, payment protection insurance cover offers the peace of mind that should you lose your job through no fault of your own, or you become unable to work, you would still be able to survive financially.

You may have read in the papers recently about mis-sold Payment Protection Insurance.  To find out if this applies to you, and for details about how to claim, please read our Mis-sold PPI article.