Payment protection insurance does what every other insurance does – provide security in case of losses due to risks that you are insured against. Then what is payment protection insurance and how does it differ from the other types of insurance?
Payment protection insurance, or PPI, is an insurance policy specifically taken out to cover repayment of outstanding loans and mortgages in case of a debtor’s inability to make the payments due to death, involuntary unemployment, and disabilities by reason of sickness or accident. This is a protection to ensure that interests will not shoot up in the event that you will be unable to pay your obligations. These four causes are exclusive so that, when you cannot pay your loan because of other grounds, you will not be able to file a claim under this policy.
Payment protection insurance is not compulsory, contrary to most belief that you are required to purchase one after taking out a loan or mortgage. You may need PPI, and you may not. To avoid unnecessary expense, assess your situation. Is it likely that you are going to lose your job before you can pay out your current loan and other obligations? If you are up-to-date in paying your credit card monthly dues, there is no reason for you to purchase PPI. However, if after making an assessment and you find out that you need one, then you can still get a PPI coverage.
When taking out payment protection insurance, or any type of insurance coverage for that matter, it is important to know that an insurance policy is a contract of adhesion where you are to agree on everything that is stated therein once you have signed it. The policy contains all the exclusions and exceptions of the insurance coverage, and it is usually filled with fine prints. There is nothing to worry about this. Just take your time in reading every detail carefully and you will not be misled.
If you have a secured income-generating activity, you do not need PPI. If you are employed, most probably you are entitled to a certain period of paid sick leaves. If it is unlikely that a redundancy program becomes necessary in your workplace, there is no risk of unemployment. If you have a similar policy which covers the risks enumerated in your PPI, then getting another policy may just be unnecessary.
Not everyone is entitled to claim under PPI. There are a number of reasons why a claim is being rejected by the insurer. If you are under eighteen or over sixty-five years of age you are not entitled to any payout for your loan repayments. If you are working only in a part-time job, or you are self-employed, or just a temporary or a contractual worker whose contract is about to end, you are also not eligible for any claim under a PPI policy. If you have an information that you are about to be declared as redundant by your employer, you will not be entitled as well to the benefits of PPI. And this operates also against someone who is aware or should be aware of an existing medical condition.
Redundancy does not apply if you are working in a family business because you can never be kicked out from a company that you own in part. You will also not be able to claim under this case if you volunteered to participate in any form of redundancy program. These are most of the exclusions that you may find in the fine prints of the insurance policy.
When you have decided to buy your ppi, remember that you are not required to take it out from the same company which granted you the loan or mortgage. You have the option to purchase it from another financial institution, where it is called a stand-alone payment protection policy.