Payment protection insurance, more commonly known as PPI, is a type of insurance policy that offers short-term protection to the policyholder. These plans exist to provide you with financial support should you be unable to work as a result of an accident, illness, or unforeseen situation. If or when something happens that prevents you from working, PPI can help you meet some of your financial obligations. This is a complex scenario with a few twists to understand.
First, What Exactly Does PPI Offer?
PPI provides financial help to cover loan and credit card repayments in situations where you, the policyholder, becomes unable to do so. This may be due to illness, injury, or job loss due to layoffs or redundancy, with the policy kicking in when you cannot work and earn funds to pay your debt. The funds from such a policy are often designed to cover an existing mortgage or loan repayment. For example, if you have this type of policy for your mortgage, and you can’t work for several months due to a chronic disease, this policy steps in to cover your mortgage payments.
These policies have many limitations.
They don’t provide coverage during the first 90 days you’ve been unable to work, so you’re on your own for three months before you can use the policy.
There are limitations on the types of illnesses and diseases it covers. Consumers must check these policies carefully before deciding to use them.
Situations considered pre-existing conditions, or something you knew you had previously such as heart disease, aren’t covered by these policies.
If you’re unemployed or retired, even if you become ill during that time, the policy doesn’t work.
So, why would you need PPI? In premise, this type of policy can provide some extra financial security by paying some of your largest expenses when you can’t. But, it has numerous limitations.
Do You Feel You’ve Been Mis-Sold PPI?
We’ve seen some of the largest banks step forward and compensate customers who were mis-sold PPI, and some of these “mistakes” date back more than 10 years. Many financial institutions promoted and sold these policies heavily because of their high profit potential.
PPI policies offer high premiums to the insurer and provide very little real protection to borrowers. The premiums can often add 20% or more to loan costs when sold alongside a mortgage, with most policies being ineffective due to the sheer unlikelihood of the outcome. Many were mis-sold, meaning the customer had no idea the policy was present or couldn’t be used in their particular situations. For example, PPI policies can’t be used by a self-employed individual. Plus, many of these policies have limitations on when consumers can file claims and limited access to the funds during the much-needed time for them, those first months after becoming ill.
Many of the companies that mis-sold this type of insurance are paying it back. For consumers who would like PPI, it’s still possible to purchase these policies, but do so wisely after considering all details and associated costs.