Payment protection insurance, also known as PPI, is a type of short-term income protection and is usually sold with products that you need to make repayments on, like a loan, credit card or mortgage. This type of policy covers you for a loan payment if you are made redundant or find yourself unable to work due to an illness or accident. The right policy means you will be able to meet your payments if something goes wrong.
- What is payment protection insurance?
- Do you need it?
- Have you been mis-sold PPI?
- Other types of insurance to consider
What is payment protection insurance?
Payment protection insurance (PPI), is designed to help you keep up with a loan or credit repayment for a short period if you’re unable to work because you:
- are ill
- had an accident
- have been made redundant.
Most people use PPI to cover financial commitments such as their mortgage, credit card payments or loan repayments.
Making sure you’re able to cover these costs will help keep you out of debt if you do find yourself unable to work.
PPI policies usually only cover a specific debt, for example, your current credit card bill. If you claim, the money will usually go straight to pay off that loan – you can’t use it for anything else. But it’s also possible to buy a “stand alone” PPI policy to cover lost income usually for a period of 12-18 months up to a maxmium of around 65% of your annual gross (before tax) income.
Policies typically cover:
- illness or disability
- unexpected redundancy (usually as added option)
- circumstances that stop you working (i.e. becoming a carer)
- death (depending on your policy).
For example, if you have PPI for your mortgage and find yourself unable to work due to an accident, you should receive a regular sum of money to cover your mortgage repayments.
What isn’t covered?
Not sure what something means? Have a look at our Protection insurance glossary.
Usually, PPI won’t cover:
- for a period up to the first 90 days after you stop working (sometimes referred to as
- the initial exclusion period) – you need to be able to keep paying for this period yourself
- certain illnesses – check the list in your policy before you buy
- pre-existing conditions (illnesses you know about already)
- people who are retired or unemployed.
Do you need it?
You might want to consider PPI if you have a mortgage, a loan or credit card repayments, and you want to make sure you can continue to pay them if you fall ill or are made redundant.
If you think you need PPI, make sure you understand the policy details.
Read through the policy documents and ask the insurance company – or an independent financial adviser or insurance broker – to explain anything that isn’t clear.
Who doesn’t need it?
If you’re self-employed, work on contracts or do any temporary work, some payment protection insurance policies won’t cover you.
You probably don’t need payment protection insurance if:
- you are unemployed (rather than redundant)
- your partner or family would support you
- you have enough in savings to keep up with payments
- you only have spare cash for basic insurance, like car insurance or buildings and contents cover
- you could get by on your sick pay
- you have an employee benefits package which gives you an income for six months or more, so you can keep up your payments.
Have you been mis-sold PPI?
You have until 29 August 2019 to complain about the sale of PPI.
Find more information about this and how to claim on the FCA website.
You might have heard about the mis-selling of PPI and many people who were mis-sold it have been compensated. In the past, some banks and lenders sold policies without fully explaining the product or falsely claimed it was compulsory for anyone taking out a loan.
If you think you might have been mis-sold PPI, ask yourself the following questions:
- Did you know you were buying it?
- Were you told you had to buy it?
- Did the terms of the policy actually cover your circumstances?
- Did you need payment protection insurance?
- Were you told how much commission for the PPI will go to the lender?
If you think you have a reason to complain get in touch with your bank or lender.
They have five days to tell you they received your complaint and eight weeks to act on it. If you hear nothing or are unhappy with their response you have six months to contact the Financial Ombudsman Service.
Other types of insurance to consider
PPI helps protect your repayments when you have borrowed money, but there are different forms of insurance to help cover your income if you’re unable to work.
Short-term income protection insurance (STIP), for example, will cover your essential outgoings for up to a year.
Income protection insurance (IP) covers a wider range of illnesses/disabilities and can provide more cover for a longer period of time.
These are separate products and shouldn’t be confused with PPI.
You can find out more by following the links below:
- Do you need income protection insurance? This product includes a wider range of illness and disabilities and provides cover until you can to return to work.
- Do you need short-term income protection? This product helps cover your essential outgoings if you can’t work for a short period of time.
- Do you need critical illness insurance? This long-term product provides a tax-free ‘lump sum’ if you’re diagnosed with a serious illness listed in your policy.
This article is provided by the Money Advice Service.