Do You Need PPI?

Payment protection insurance (PPI) is a type of insurance that will step in and cover your  loan payments in specific situations where you are financially unable to meet your obligations.  The most typical scenarios include losing a work position to redundancy, accidents or serious illnesses. 

You may have been offered PPI at the time you applied for a mortgage, credit card, car loan or any other type of payment plan.  This type of insurance is often referred to as credit insurance, loan protection, or repayment insurance.

How PPI works

The coverage amounts for PPI and specifics of how the policy works vary significantly from provider to provider, and are typically spelled out in a terms and conditions document.  In general terms, the policies cover monthly loan payments, or some portion of the payment, for a fixed time period.  This fixed time period varies, but is typically somewhere between 6 to 18 months. If the PPI includes life insurance, it almost always pays off the entire balance in the event that you die.

Before you buy PPI

Some providers of PPI policies have used aggressive, and misleading sales materials.  Recent efforts to regulate the industry have netted some improvements, but PPI policies still differ greatly in their costs and benefits, so it pays to shop around to find one with fair pricing and coverage.

Always read the terms and conditions, as well as other key policy language before you buy. Carefully review information like how long the coverage lasts, the primary benefits of the policy, and any notable or unusual stipulations and exclusions.

Some PPI details to consider:

  • Price – Similar policies can have wildly different costs.
  • Overlaps with Coverage You Already Have – If you already have life insurance, sick pay, or disability benefits from your employer you may not need PPI, or you may need less coverage than you initially though.
  • Limits and Restrictions – Study the policy carefully to look for exclusions of specific medical conditions, exclusions for being dismissed from work for cause, and also look for payout limits.

PPI isn’t the only insurance choice that can provide protection for you against a loss of wages, and in fact, may not be the right choice for your situation.  It’s wise to consult an insurance specialist before signing up for Payment Protection.