Payment protection insurance

Ever wondered how you'll pay the bills if disaster strikes? You could take out insurance to cover certain debts in the event of an accident or unemployment, but is it worth it?

In a nutshell?

• When you take out a loan, credit or store card, you're often asked to take out an insurance policy. This is meant to cover the loan or card repayments if you become unable to afford them yourself because of illness, unemployment or because you have an accident or become disabled.
• Most policies also include a life benefit which will pay off the outstanding balance on a loan or card if you die. This type of insurance is called 'Payment Protection Insurance' (PPI). It can cover repayment of car finance, personal loans, credit and store cards, catalogue debts and mortgages.
• Very often, payment of PPI is included with the loan repayments. Although they're taken out at the same time, loans and PPI are different things. When a lender sells you PPI, you must be told the price of PPI separately to the cost of the loan or card. You should also be asked to sign for it separately.
• You don't have to take out PPI. However, some companies won't agree to give you a loan unless you do so. So, if you don't want PPI it might be better to go to a different lender.

Do I really need it?

Think carefully before you agree to buy PPI. Here are some questions to consider:

• The cost of the insurance. The cost of PPI can be high, so shop around to get the best deal.
• Do you really need to take out the insurance? You might already be covered under your life insurance or employer's sick pay scheme, which will cover the loan or credit repayments if your circumstances change.
• Does the insurance policy really meet your needs? Many PPI policies won't cover you in certain circumstances, for example if you're self-employed or have a particular medical condition.
• How long does the policy pay out for? Typically, PPI only covers the loan or credit repayments for twelve months. Also, many policies pay out in blocks of 30 days. This means that if you returned to work after 28 days, you wouldn't get a payment.
• Will you be covered for unemployment? PPI will only cover you for unemployment under very specific circumstances.

Other conditions to consider:

• You must normally be in permanent, full-time employment. This usually means you have to work at least 16 hours or more a week.
• If you full-time, but for a number of different employers, you may not be covered. Make sure the insurance company knows the exact details of your working arrangements before you take out PPI.
• Many PPI policies don't cover you if you're on a temporary contract or self-employed. Check the details of a PPI policy before taking it out.
• Some policies won't cover you if you're dismissed from your job or take voluntary redundancy.
• Many PPI policies won't cover you for certain illnesses. For example, policies don't usually cover conditions involving pregnancy, drugs or alcohol. Nor will they provide cover if you fail to disclose any pre-existing conditions.

Cancelling a PPI policy

• You have the right to cancel a PPI policy within 14 days of buying it, or 30 days if the policy includes life cover.
• If you pay monthly premiums for your PPI, you can usually cancel at any time, although you may need to give a period of notice.
• You may also be able to cancel a PPI policy due to mis-selling (see below).

Making a complaint about PPI

If you have problems claiming on a PPI policy, you should first complain to the insurance company. If you aren't satisfied with their response take your complaint to the Financial Ombudsperson service of your country, if applicable.

Mis-selling

If you're unable to make a claim, this could be because you were sold a policy which was wrong for your circumstances. If so, it's worth complaining to the company which sold you the policy as you may be able to get a refund.