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Noting the Conditions in Payment Protection Insurance

By: Tracy Wilkinson - Updated: 4 Oct 2012 | comments*Discuss
Ppi Payment Protection Insurance Loan

With house prices climbing all the time and the cost of living getting higher, people are taking out higher mortgages, large personal loans and maxing out their credit cards. All this is well and good while you are working and can afford to pay it back - but what happens if you suddenly fall ill and have to stop working?

This is where Payment Protection Insurance or PPI comes in.

What is PPI and How Does it Work?

Designed as a safety net, Payment Protection insurance is taken out by those who have a debt to repay - so that if you have to stop work due to accident, illness or redundancy, then the insurance policy will cover you and make payments that you can no longer afford. Depending on the type of cover, it can also cover the cost of your debt if you die, making sure your loved ones don't have to pick up the debt.

PPI has been in the news a lot lately, with investigations showing that a lot of PPI policies have been mis-sold to people that won't be covered as they thought they would be when they paid for the protection. With this in mind it's never been so important to understand what your policy covers when you take it out.

PPI can cover credit cards, loans, hire purchase – and even your mortgage, but it’s important to remember that whatever type of policy you're thinking of taking out you need to take care to read the terms thoroughly and make sure that you understand what you will and won't be covered for if the worst happens.

Where Do I Get PPI From?

You'll probably be offered PPI with any credit that you take out, but don't feel pressurised into taking it out there and then. There are lots of places you can get PPI from and if you shop around you will probably be able to get a far better deal.

Are There Different Types of Policies?

Yes there are. To make sure you will be completely covered by your policy choice you should check the following:

  • How long is the term covered under this PPI?

In some cases the PPI will only last for the first couple of years. Check how long it lasts for and make sure you are covered for the full term of your finance agreement.

  • How will your circumstances affect your policy choice?

Check your circumstances are covered, especially if you are a part time worker, a contractor, a temporary worker or are self-employed. This may affect your cover.

  • How does the policy pay your debts?

Does the insurance company pay out a lump sum and pay off the debt or will they make regular payments to reduce a debt - such as monthly payments. Also find out if there is a 'cut-off' period or fixed maximum amount for claims, such as 12 months or £2000.

  • How long is the waiting period for a claim?

This refers to how long you have to wait before you can claim sickness or unemployment payment benefits.

  • How long after the waiting period will the benefit be paid?
Once you have completed the waiting period, how long will it be until you receive your benefits? Are they paid to you or directly to your creditor?

What Won’t be Covered?

  • Pre-Existing Medical Conditions

Watch out for clauses pertaining to pre-existing medical conditions. When you take out PPI you'll probably have to fill in a form detailing your medical conditions – these can include a bad back or recurring problem that has led you to take time off work.

There may be exclusions, especially around things that are hard to prove or that make it likely that you will need time of work or may end up unable to work – such as angina, severe back problems and mental issues or addiction.

Make sure you fill it any forms truthfully and don't try and pull a fast one. If you don't declare something on your form that is later discovered when you make a claim then you probably won't get a penny - nor will you get your premiums back.

  • Claims made early

There will be a minimum time clause in your contract that says you will not be able to claim before the policy has run for a specified amount of time

  • Pregnancy

Any issues linked to a regular pregnancy probably won’t be covered in PPI policies

  • Self-harm and negligence

Any condition (including death) that arises as a result of self-harm or negligence that leads to your inability to work or the loss of your employment will not be covered.

  • Loss of employment

If it is decided that you lost your job because of your own fault or deliberate actions, then the insurers may choose not to pay your claim.

Whenever you purchase a PPI policy make sure that you understand fully what the terms are, how they affect you and what you need to do to ensure that you get the protection you thought you were paying for. Otherwise you can end up out of pocket with mounting debts - and no peace of mind when you need it the most.

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