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Payment Protection Insurance (PPI) is an insurance policy that covers repayments on personal borrowing such as a mortgage, credit card or personal loan, if you are unable to work due to an accident, sickness or unemployment.
According to the Office of Fair Trading, 6.5 to 7.5 million payment protection policies are taken out each year. This generated an estimated premium income of £5.4bn in 2003. PPI products have a wide degree of varying pricing, so it is important that you consider carefully whether to take out this product and who from.
PPI can be taken out at the same time as the loan, mortgage or card starts, from that particular product provider. It can also be taken out at a later date. Standalone products can also be purchased from direct providers rather than your lender.
According to a recent moneyfacts.co.uk user poll, 53% of consumers think their provider was too pushy in trying to sell them PPI. There are huge profit margins to be had and so staff are often encouraged to sell this product, even if it is not that beneficial to the customer.
You should consider carefully whether to take out PPI when borrowing money. Government statistics show that 755,000 people were made redundant in the UK between June 2002 and May 2003. We can never predict whether we will be unable to work due to sickness or accident. The decision to take out PPI also depends on how much you are borrowing and whether you feel you will be able to cover repayments if you cannot work through savings or other income.
If you decide to take out a PPI policy, it is wise to check what is covered and the general terms and conditions. PPI will only pay out for a set period of time – usually between 12 and 24 months. There is also a waiting time for payments to begin if you do claim on the policy. These policies often exclude pre-existing medical conditions. A moneyfacts.co.uk user poll revealed that 41% of people with PPI do not know what is covered. This can cause a nasty shock if you come to claim and for some reason the policy will not pay out.
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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