Payment protection insurance, abbreviated as PPI, is a type of insurance designed to cover outstanding credits and debts. Normally, the insurance is taken out when an individual wants to secure a loan or overdraft such as a car loan, mortgage, or credit card. Once the customer is unable to pay for the loan or credit due to circumstances such as unemployment or layoff, sickness, accident or even death, he or she can file for a PPI claim. Depending on the terms of the policy, the insurance company will pay for the loan or a percentage of what should be paid for in a particular span of time. PPI is also known as credit protection insurance, account cover, loan repayment insurance, or accident, sickness and unemployment insurance (ASU insurance).
Payment protection insurance can be taken from a variety of sources. Most lending agencies offer the insurance policy together with the loan. For instance, if the customer takes out a home mortgage from a bank, the bank would usually offer for the customer to also take out the mortgage payment protection insurance as an add-on. However, the customer can choose to refuse this offer and just get a standalone insurance policy from a different insurance company. As one would when buying anything, the borrower should look at all the options available in order for him or her to get the best policies offered by different companies and agencies.
Almost all protection insurance is provided for a specified or limited span of time, normally one to two years. After that period, the borrower should already be able to resume responsibility for paying for his or her repayments. Basically, the borrower should be able to find another source of income or be able to go back to work again after the specified period in the insurance policy.
Mortgage PPI covers the monthly mortgage payments in the event that customer loses the ability to work and have a monthly income. This will prevent them from losing their homes while they are recovering from a health failure or accident, or while they are looking for another job. Likewise, credit card PPI covers outstanding payment dues for the specified time.
When it comes to loan protection, it covers different loans such as personal loans and car loans. Meanwhile, there is also what is known as income PPI in which the customer will receive monthly compensation while he or she is not working.