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Payment protection insurance : what you should know ?

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  • Think carefully about the risks you could face while paying back a loan, mortgage or credit/store card and whether taking out PPI would be to your advantage. If you had an accident that stopped you from working, would you have enough money from other sources to be able to continue paying off the loan?
  • Consider whether you have 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 – see Protecting income or borrowing.
  • Don’t be pressurised 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.
  • Check the total amount of benefit you may receive from the policy, compared to the cost of the cover over the duration of the loan. This may help you decide whether PPI covers what you need it to cover.
  • Check online forms when applying for loan or credit online. Although many firms have agreed not to do this, PPI may have been selected by default, and you will need to change this option if you don’t want to buy it. You should also print out or keep copies of completed forms in case you need to complain or make a claim in the future.
  • Find out whether the firm is giving you advice; if not, consider whether you need advice. Getting advice means that the firm should recommend a PPI or other policy that meets your needs.
  • Find out whether the policy is a single or regular premium. If you buy a single premium policy you pay a lump sum of 3-5 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.
  • Check if the PPI cover lasts the length of the loan. Some policies do not always last as long as the term of the loan. For example you may have a 25 year loan but the PPI policy may only cover you for the first 5 years. Think about how you will protect repayments after the policy ends, but whilst you are still paying back the loan.
  • 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?
  • 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.
  • Check what you will get back if you cancel the policy or repay the loan early.

Ask the salesperson to explain the terms and conditions of the policy and make sure you read the key policy information – especially the exclusions.