About payment protection – how effective is it?

Anyone that has ever taken out a loan, credit card, or other form of finance has probably been asked about taking out PPI or Payment Protection Insurance. PPI is a form of cover that is designed to cover repayments on the debt for a specified period of time in the event that the policyholder cannot make repayments due to not being able to work because of sickness, accident, or redundancy.

Whilst PPI can offer peace of mind to some borrowers, it is not suitable for some people. It can also be very costly and some people may prefer to take their chances and go unprotected rather than pay the high prices linked to PPI.

However, PPI has not stayed out of the financial headlines for very long over the past couple of years, because regulators and campaigners have found that many consumers are being mis-sold this type of cover. It is important to remember that this type of cover will not suit everyone.

For example, if you are not employed – such as those that are self employed or retired – the cover in pointless because you cannot make a claim, so you will be paying for nothing. However, many lenders and insurance providers have been found to have sold this cover to people that can never claim.

You should also remember that PPI is not an essential requirement, but is optional based on your own preferences. Some lenders have been known to tell borrowers that they cannot get the finance they want unless they also take out PPI.

If you do decide to take out PPI you do not have to take it from the provider through which you are taking the loan or finance, which some may try to make out. You can in fact shop around and find the best deal from another provider.

In the past some lenders were adding PPI to the finance without the consumer’s knowledge, which meant that the consumer was paying more for their borrowing and was not given the choice to reduce payments by opting out of PPI.

You should therefore always check and make sure that PPI has not been automatically added to any quote or finance that you receive.

PPI can be effective for those that want to ensure that they do not fall behind on debt repayments if they become ill, injured, or are made redundant, but you should bear in mind that the cost of cover could really bump up your repayments.

You should also bear in mind that it is well worth shopping around for PPI as the cost of cover can vary widely from one provider to another, so don’t be persuaded to take out cover with the lender that you taking finance through.