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What is Payment Protection Insurance?

September 16, 2012 by Shawn

Payment Protection insurance, or ‘PPI‘, is a type of insurance that ’s typically sold as a rider on a loan, credit card agreement, mortgage, etc. The purpose of PPI is cover the monthly payments of the loan should unforeseen circumstances arise that make it impossible for you to pay them on time.

PPI has historically been depicted as a dubious instrument because many of the providers inject rather complex terms and conditions into the contract.  For example, many PPI policies do not start payments for at least a month following a claim.  Additionally, there are also often exclusions for conditions like acute stress disorder or severe back pain.  It’s also difficult to get coverage if you are self-employed, or a full-time student.

That’s not to say there isn’t merit in a well rounded PPI plan. If you pass the eligibility requirements, the coverage can be a lifesaver if you meet tough financial times.  Common incidents that ARE typically covered include job loss and hospitalization. Most of these policies also include life coverage which pays off the outstanding balance on a loan if you die.

Things to consider before you purchase PPI

The cost - the monthly cost of PPI can be quite high. You should always comparison shop to ensure you’re getting the best deal.

Do you really need PPI? You may aleady have sufficient coverage for loan repayments. For example, do you already have a life insurance policy, guaranteed sick pay or disability coverage from your employer?

If you do choose to buy this type of protection, it’s advisable to shop around for the type of coverage that meets your needs, rather than taking the default plan offered by the originator of the loan.  There are a variety of comparison websites offering PPI that will let you compare plans from several providers side-by-side, allowing for a more informed choice.

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