Payment Protection Insurance (PPI) is a type of insurance a consumer can obtain to cover repayment of debt in the case of illness, disability, death or other circumstances leading to loss of income. This is basically an insurance to prevent you defaulting on other debt. You can get PPI for many different types of loans such as car loans, personal loans, mortgages, etc.
With the job market still shaky there is still significant risk that consumers might lose their jobs and be unable to temporarily be unable to make payments on loans. The PPI pays the minimum balance on the debt for a certain period of time, commonly 12 months, if the consumer is unable to do so for a reason covered by PPI. After that period however, the consumer has to find other means to finance the debt.
One has to be careful while obtaining this type of insurance though. PPI has tough restrictions on who will be paid. Hence many claims get rejected because people who applied for the insurance didn’t understand how it worked or didn’t clearly read what situations were eligible. Consumers should also be aware that a number of loans have PPI bundled within them with the PPI portion of the loan premium being a significant fraction.
Currently, there is a scandal in the UK because PPI was incorrectly marketed to a number of consumers and these same consumers are now suing to get their premiums returned. Research by the Citizen’s Advice Bureau in the UK indicates that as many as 70% of the PPI policies may have been incorrectly marketed to consumers. That amounts to about 14 million policies. This does not mean that PPI does not have its uses. It does however point to the fact that a proper understanding of the product by the consumer is required to see if there is a real benefit in obtaining PPI.
If you feel you might have a need for PPI but want to ensure that your assumptions are correct, a payment protection specialist might be of use to you. Alternatively, if you believe you have been incorrectly marketed PPI as part of a loan, again, speaking to a payment protection specialist can be of help.