PPI or Payment Protection Insurance, is insurance that may be taken out alongside a loan, mortgage, credit card or store card.
As explained in our previous article on ‘What is PPI and What does it cover?‘, PPI is insurance that will cover your monthly credit repayments in the event that you cannot work as a result of
- being made redundant, through no fault of your own,
- having an accident or
- being sick
PPI is sometimes known as Accident, Sickness and Unemployment insurance, or ASU.
The amount paid depends on your insurance policy and will either cover the full monthly repayments or a percentage of them. The payments will be paid for an agreed period as defined in the policy, usually for a maximum of 12 or 24 months.
PPI payments are tax free to an agreed limit, often £1,500 or 50% of your gross monthly income.
There are different types of payment protection insurance
- Loan payment protection insurance
- Mortgage payment protection insurance, MPPI
- Income payment protection insurance
The first two, loan and mortgage protection insurance, as their names suggest are specific to the debt and designed to cover the repayments on this debt.
An income payment protection policy means you will receive an agreed level of income as defined in your policy and you can use this as you need to cover your bills each month.
There are different cover options available:
- Accident, sickness and unemployment cover
- Accident and sickness cover only
- Unemployment only cover
For most PPI policies you must work at least 16 hours per week.
If you are self employed or a family member controls the company that employees you, you can still get payment protection insurance but to make a claim you will need to provide additional supporting information.
Fundamentally you need to assess how you will cover your debts if you cannot work because you become sick or have an accident or indeed you are made redundant.
PPI is one way of covering your repayment commitments. It just might make the difference between keeping or losing you home.
Despite all the recent issues over the mis-selling of single premium payment protection insurance, it is still a vital insurance to consider.
When you take out a mortgage, other loan or credit agreement, the company providing you with the credit is likely to offer you payment protection insurance. You don’t have to take it from them though.
PPI does not have to be linked directly with the mortgage or loan, there are independent providers of PPI who often offer enhanced cover with cheaper monthly premiums.