What is Payment Protection?
Payment protection insurance, or PPI, is insurance that will pay out a sum of money to help you cover your monthly repayments on mortgages, loans, credit/store cards or catalogue payments if you are unable to work because of an accident, sickness, or become unemployed through no fault of your own. (We have tables for PPI to cover mortgages, loans and credit/store cards.) If you take out a PPI policy with a company you are borrowing money from, the insurance will only cover the amount you have borrowed from this company, it will not cover other loans that you may have.

With a PPI policy, the insurance company will pay your monthly repayment (or a percentage of them) on your behalf for a fixed period of time if you become unable to work because of an accident, sickness, or become unemployed through no fault of your own. Sometimes the insurance company will make the payments to you, sometimes to the company you have borrowed money from. This type of insurance is sometimes known as ASU (accident, sickness and unemployment) insurance, Account Cover or Payment Cover.

PPI can give you cover against unexpected changes in your personal circumstances, but bear in mind its limitations and exclusions.


What do I need to know about PPI?

General features

• It only pays out for a set period of time, generally either 12 or 24 months, so think about what you would do if the claims payments stop and you are still unable to work. How would you meet your repayments?
• Check to see what you will and what you won't be covered for – for example, are there any exclusions relating to the nature of your employment or your medical history?
• Find out whether the policy is single or regular premium. If you buy a single premium policy you pay a lump sum up-front. This amount is usually added to the sum you borrow and attracts interest, so you'll be paying more over the long run.
• Check what refund you will receive if you cancel the policy or repay the loan early.

You have choices

• PPI is almost always optional– you should not normally be refused a loan or other borrowing if you decide not to buy it.
• Don't be pressurised into buying it – you don't usually have to take out PPI to get credit, and you don't have to buy it from the same place you are getting the credit from. There are 'standalone' providers that only sell PPI.
• Consider whether you are already covered by other insurance you have (for example through your employer), or whether other types of protection insurance may be more appropriate.
• Cancellation period (applies after July 2008) – when you take out PPI, you can cancel the policy and get a full refund of any money paid if you do so within 30 days of the date you sign the contract.

The advice and sales process

• Find out whether the provider is giving you advice. If not, think about whether you need advice. Getting advice means that the firm should recommend PPI or another policy that meets your needs.
• When you buy PPI, firms have to give you key policy information that 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.
• Make sure you read all the documents and ask the salesperson to explain anything you don't understand – especially the exclusions.