What does PPI cover?
What the insurance covers will vary depending on the sort of repayments the policy is designed to protect, and on the terms of the particular policy.
The following benefits are typical for different types of PPI cover:
Mortgage – The insurance covers your monthly mortgage repayments for a set period of time. The maximum number of monthly repayments that the insurance company will make is usually 12, but it can sometimes be 24. This means that after this period you will have to pay your monthly mortgage repayments yourself.
Credit and store cards – The insurance will generally pay off a percentage of your outstanding balance or the minimum payment each month for up to a year. Check which option is being offered. This means that you may still have to pay any balance left after this time.
The insurance typically only provides cover for the amount you owe when you make a claim, and not any balance you build up after this.
Loans – The insurance will cover your monthly repayments for the loan – generally for 12 or 24 months. After this period you will have to pay your monthly loan repayments yourself.
If the insurance for any of these products contains life insurance, then the cover will generally pay off the balance of the debt covered if you die. If the claim is for disability, the monthly repayments may be paid to the end of the life of the loan.
How will I know what I’m covered for?
You should read the key policy information that come with any policy you take out.
This sets out, amongst other things, the main features and benefits of the policy as well as any significant or unusual exclusions and how long the cover lasts. If unclear ask the salesperson to go through it with you and make sure you’re happy before you take it out.
How much will it cost?
Remember interest rates and APRs for loans, mortgages and credit/store cards do not usually include the cost of the PPI policy, so comparing interest rates on their own will not be helpful if you are taking out PPI.
The salesperson must tell you how much the insurance will cost you separately from the cost of the loan, over the life of the policy. They must also tell you whether buying the policy is compulsory. You can pay by a single upfront premium, or regular monthly premiums. The single premium can be added to your loan, thereby increasing what you borrow. A regular premium is a set amount you pay each month.
The salesperson is likely to quote you a monthly figure for the PPI whether they’re quoting for a single or regular premium. If you take out a single premium bear in mind that, as it’s normally added to your loan, you’re being charged interest on that as well. A regular premium may be cheaper because you will not be charged interest. If in doubt, ask the salesperson to clarify what sort of premium they are quoting for.
What’s in the small print?
Like all insurance, PPI policies will generally include a number of exclusions or conditions that will prevent you from claiming on the policy. Make sure you understand which illnesses are not covered – see below. Also, you may not be eligible to take out a policy in the first place – say, if you:
- are under 18 or over 65;
- work less than 16 hours a week;
- are employed on a temporary or contract basis; or
- are aware you may become unemployed.
If in any doubt, ask the salesperson to explain any parts of the policy that you may not be able to claim on (the exclusions and eligibility conditions). Be sure you understand the exclusions before you buy the insurance.
I have an existing medical condition. Will I be able to take out PPI?
Yes, but you will not typically be able to make a claim for a medical condition you were aware – or should have been aware – existed at the time you took out the policy, or sometimes earlier. You would normally be able to claim for other illnesses that occur after you take out the policy. Make sure you read the exclusions to the policy.
Do I have to take out PPI and what would happen if I didn’t?
No. If the firm insists on PPI cover to get the loan, you should consider whether you really want to take the loan with that lender.
Think about the cost of PPI and the amount that will be paid out if you make a claim on the policy. Check whether payments from a PPI policy would affect the benefits that could be paid from any other protection insurance that you already have.
If you don’t take out PPI think about how you would pay the loan, mortgage or credit/store card payments if you were sick or had an accident and were unable to work or became unemployed.
Can I cancel the policy if I change my mind?
You can cancel the policy within 30 days of taking it out, depending on the terms of the policy, and get a full refund of any money paid.
If you have a single premium policy and you cancel after this initial cancellation period, you will usually find the refund you get is not in proportion to the remaining policy term. So you could get less back than you might expect.
Check with the salesperson or in the policy documents what refund you would get and how it would be calculated.
Will I still have to pay for PPI cover if I terminate a car loan?
On some occasions you may owe money for the PPI you bought to cover a loan, even if you repay the loan early. For example, this would apply if you take out a loan to pay for PPI at the same time as taking out a hire purchase (HP) agreement – or loan – to buy a car. If you terminate the HP agreement for the car early you may find you still owe money on the PPI.
I bought PPI with my loan or credit when I applied online, but I didn’t ask for it – what should I do?
Some firms offer PPI to customers when they apply for their loan or credit online – and this is sometimes selected by default on the forms. If you bought PPI in this way but didn’t ask for it you should follow the complaints process below.
Related articles on Payment Protection Insurance :
What are the main PPI (payment protection insurance) features?
Payment protection insurance : what you should know ?
