PPI (ASU) Insurance


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This page explains Payment Protection Insurance (PPI), which can cover your monthly loan repayments if your salary drops due to accident, sickness or unemployment, for a fixed period of time.

What is Payment Protection Insurance (PPI)?

Payment protection insurance (PPI), sometimes called Accident, Sickness & Unemployment Insurance (ASU) will pay a monthly sum of money to help cover your monthly repayments on mortgages, loans or credit/store card payments if you make a claim. This could be because you have an accident or sickness, or become unemployed through no fault of your own, or if you die.

This means that the insurance company will pay the monthly repayments (or a percentage of them) on your behalf for a fixed period of time (12 - 24 months) if you make a claim.  For loans, it is often called Loan Protection and for mortgages, Mortgage Payment Protection Insurance (MPPI).


It is short-term insurance and is designed to meet your debt liability payments when you are recovering from an accident or sickness, or looking for work after being made redundant.

N.B. it is important ot bear in mind that PPI taken out to cover credit card payments will usually only cover minimum payments, so may not reduce the amount owing on the credit card.

PPI is not the only product designed to protect against loss of income. Although PPI can provide worthwhile cover against unexpected changes in your personal circumstances, you should bear in mind its limitations and exclusions, and possible alternative products (such as income protection insurance).

Think You May Have Been Mis-sold Payment Protection Insurance?  Want to Make A Claim?

Many PPI policies have been mis-sold in the past and you may be able to claim a proportion or all of your premiums back.  To find out more, please visit the PPI Claims page.


Who Might Need Payment Protection Insurance (PPI)?

PPI can be suitable for people who are worried they will not be able to maintain their debt payments (e.g. mortgage, loan, credit card) if they are made redundant or cannot work through accident or illness.  This would be especially important for people who feel insecure in their job or who are not entitled to sick pay from their employer.

Main Features of PPI

It is important to understand that all PPI policies are different, so always shop around and double check with the provider selling the product whether it includes the features you need. PPI should be optional – you should not normally be refused a loan if you decide not to buy it.

  • PPI only pays out for a set period of time, usually 12 months, but sometimes 24 months
  • Many policies will not pay out for the first couple of months after you have made a claim. This may mean you need to consider how to cover these repayments before the policy starts paying them
  • To claim on the unemployment part of the policy typically you must have been employed continuously by the same company for the last 12 months on a permanent contract.  Check with your adviser or product provider
  • The policy may not cover you if you are self-employed, so make sure you check
  • You may not be able to make a claim for an illness you already have or have had before. Make sure you check this before you take out the policy. This will be called a pre-existing medical condition and can include any medical conditions you have
  • Stress or depression and possibly other conditions may not be covered, even if you can't work because of them. Again, it's worth checking before you take out the policy

Before you take out cover, your adviser or provider should give you a Policy Summary. This should set out the Key Features and benefits, as well as any significant or unusual exclusions or limitations. This will help you make an informed decision on whether to take out cover. For example one of the significant limitations in some policies is the ability of insurance companies to increase the amount of premium payable and reduce the amount of cover by giving you notice.

Like all insurance, PPI policies will generally include a number of exclusions or conditions that will prevent you from claiming on the policy, for example if you are employed on a temporary or contract basis or you are aware you may become unemployed. Make sure you understand which illnesses are not covered.

Also, you may not be eligible to take out a policy in the first place if you:

  • Are under 18 or over 65
  • You do not reside in the UK
  • Work less than 16 hours a week

If in any doubt, ask your adviser to explain any parts of the policy that you may not be able to claim on (the exclusions and eligibility conditions). Make sure you understand the exclusions before you purchase the insurance.

How Can I Get Protected?

If you already have a mortgage, loan or credit card and your payments are not covered in the event of accident, sickness or unemployment then you may wish to consider taking out PPI.

We recommend that you speak to an independent financial adviser or insurance broker to discuss what type of insurance is the most suitable for your needs and budget.  An independent adviser can search the market for you and give you free advice based on what is right for you.  PPI is useful, but you may not always want it or be able to claim on it when you need to.


Important Points To Consider

  • Think carefully about the risks you could face while paying back a loan, mortgage or credit/store card if you couldn't work due to accident or sickness or if you lost your job.  Would you have enough money from other sources to be able to continue paying off the loan?
  • A good adviser should take the time to find out what your true needs are and then make a recommendation based on those needs
  • Consider whether you have any other insurance which already covers you (such as sick pay or death-in-service benefit through your employer), or whether other types of protection insurance may be more appropriate such as income protection insurance
  • Don't be pressured into buying it. It is very rare that you have to take out PPI to get a loan and you definitely don't have to buy it from the same place you get your loan from.  We advise you speak to an independent financial adviser or insurance broker to ensure best advice and a competitive price
  • We do not recommend single premium policies you pay a lump sum of many years worth of premiums in advance. This amount is added to the sum you borrow and attracts interest, so you'll be paying more over the long run (see PPI claims)
  • Check if you would have to continue to pay for cover if you take it out at the same time as a loan but you repay the loan early
  • Think about what you would do if the claims payments stop (usually after 12 months) and you are still unable to work. How would you pay the rest of your loan / mortgage
  • Check to see what you will be covered for and what won't be covered – for example any exclusions or limitations relating to the nature of your employment or your medical history
  • Check whether payments from a PPI policy would affect the benefits that could be paid from other protection insurance that you already have - your adviser should be able to tell you
  • Check what you will get back if you cancel the policy or repay the loan early.

Ask your adviser to explain the terms and conditions of the policy and make sure you read the key policy information, including the exclusions.


Useful Links

>>> PPI Mis-selling Claims
>>> Income Protection Insurance
>>> Find a Loan
>>> Find a Mortgage

 

 

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Industry estimates for the UK PPI market put the number of live policies at around 20 million, with between 6.5 and 7.5 million new policies being taken out each year. PPI premiums are said to total approximately 5.3 billion per year. Figures supplied by the Association of British Insurers, August 2005

In comparison, property insurance premiums total 8 billion and motor insurance 9.5 billion. UK insurance - key facts, Association of British Insurers (2004)

Stories of the credit industry making large, even excessive, profits from PPI premiums and commission regularly appear in the finance press. For instance the Guardian reported that Barclays made 240 million from PPI sales in 2000/01, with a margin of 70 per cent on payments made by consumers. The Guardian, Saturday March 6 2004

Lloyds TSB plc report income in 2004 from creditor insurance premiums of 114 million and commissions from broking creditor insurance at 377 million. 2004 results, Lloyds TSB Group plc (2005)