Payment protection insurance (PPI) has received a lot of publicity recently due to the big banks losing their fight against allegations of mis-selling PPI to thousands of customers.

However it is important to remember that the negative stories relate to insurance providers dubious sales techniques rather than complaints about the product itself.

Payment protection insurance is a type of insurance often added onto loans, mortgages, credit cards and other forms of borrowing which is designed to protect the borrower in the event of an accident, illness or unemployment.  The insurance will cover the loan repayments usually for up to a year.

Banks were accused of aggressive sales techniques whereby PPI was sold to customers who were not eligible to make a claim e.g. the retired and self-employed; other customers were incorrectly told that they had to buy PPI from the loan provider and some customers didn’t even know they had bought PPI!

Things to consider…

If you are taking out a new form of borrowing and are considering PPI, think about what would happen if you became unable to work or lost your job.  Do you have any savings that could cover repayments? Do you have friends or relatives that could help you with the repayments?  If so, you may not need PPI.

If you think you still need PPI, don’t automatically sign up to the insurance provider by your loan company.  Shop around for standalone PPI and use price comparison websites to find the cheapest provider.

When taking out a policy think about what type of cover you need – policies can cover a combination of accident, illness, unemployment, terminal illness and death.  Also consider the excess period of the cover – many policies have an excess of 30 or 60 days but some will backdate payments to the date the problem first occurred, so always check the policy to avoid any nasty surprises.

Finally, check your eligibility for the policy.  Most PPI policies will cover repayments in the event of redundancy, however as with many types of insurance there is a “get-out clause” meaning that your policy could be invalid if your redundancy was “foreseeable”.

The definition of what is considered to be foreseeable will vary between the insurance providers, but as a general rule if you are taking out PPI because there are indicators that your job is at risk e.g. other redundancies at your firm, then you may not be able to rely on this part of the insurance.