Can You Afford Payment Protection Insurance?

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The next time you apply for a loan, don’t be surprised if you are offered PPI, or payment protection insurance. Though PPI cannot be a requirement of approval, your lender may push hard for you to accept the protection. Before you put your full trust in your lender, it’s important that you research PPI for yourself. While protection insurance can be beneficial for some borrowers, the expense can be too much to handle for others. Here’s what you need to know about PPI:

Coverage

PPI was put in place to protect the consumer in the event that they were unable to make their monthly loan payments. At face value, payment protection insurance will help you make your loan payments for a set period of time if you lose your job, are injured, or become disabled. What many people are not told is that coverage often will not kick in for 30 days after a major life event and that there are many exclusions that apply.

Exclusions

If you are a student, are self-employed, or have a pre-existing medical condition, any claims that you make are likely, if not guaranteed, to be denied. Unfortunately, many unscrupulous lenders have failed to disclose these facts to their clients and have mis-sold PPI. When you are considering protection insurance, keep in mind that it is just that: insurance. There is a laundry list of exclusions that apply to PPI just as they apply to other policies.

Cost

PPI can be incredibly expensive, particularly for those who are on a tight budget. The costs of PPI can climb even higher if the insurance is tallied with your loan rather than calculated separately. For instance, if you take out a $25,000 secured loan with a $12,000 PPI premium, you could be paying an additional $20,000 over the lifetime of your loan. In contrast, the same PPI premium, when standing alone, would cost you only $2,000 over the lifetime of your loan. If you do decide to take out a PPI policy, it’s imperative that you make sure it’s not tied into the total cost of your loan.

Misrepresentation

Over the past several years, thousands of people have been mis-sold PPI policies. Because of this misrepresentation, lenders have had to pay back hundreds of thousands of dollars to their customers. Consumers have been sold PPI regardless of their age, pre-existing medical conditions, or other disqualifiers. Because PPI has become the new money-maker for lenders, it’s important that you understand whether or not you will qualify for coverage before you sign a contract.

Benefits versus Cost

For some people, PPI offers peace of mind in knowing that your loan will be repaid in the event of a financial emergency. If your job isn’t secure, if you tend to get sick or are accident-prone, you may want to seriously consider a PPI policy. If, on the other hand, your job is secure, you are healthy, and have other means of paying your bills in the event of an accident, you may want to save your money.

PPI policies aren’t cheap and should be considered with some seriousness before they are accepted. If you are on a budget, you should be very clear on what you will be paying for your policy. Many times, the cost of PPI outweighs the benefits for the average person. If you need help deciding whether or not to accept a PPI policy, you may want to consult a financial adviser who can assist you.

Dawn Douthit is a freelance blogger who writes about the benefits and costs of payment protection plans. If you are looking to claim PPI or just want to compare the market, you can find out more at www.ppiclaims.uk.com .

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