How To Tell If You Need Payment Protection Insurance

Payment protection insurance has been in the news a lot in the last few years. Thanks to lenders that charged its customers for PPI that they didn’t want or need, it’s become something of a dirty word. The result was that millions has been refunded to the previously unknowing borrowers. But PPI certainly has its place, lest we forget that payment protection was important even before the controversy.

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Image source: http://visualhunt.com/

Let’s give it a fair shake here. Forget all your misconceptions about what payment protection insurance actually is. Forget all of the controversy surrounding it for a minute. When we strip it down like this, we can see that it actually has a use and could be very beneficial to you. Today, we’re going to explore how it could help you and what circumstances are the most likely to necessitate it.

First Things First, Let’s Understand PPI

In its essence, payment protection insurance is designed to give borrowers some assurance. At least regarding their loan payments. We’ve all been in a position where we need to borrow money on some scale. Even if it’s just a handout from your parents when you were younger. Sometimes, things are much more desperate than that. People have real struggles with money and don’t know where to turn. That can lead to them making some impulsive and potentially troublesome decisions.

There are two main types of PPI. The first, standard policy as it’s referred, is open to people of all backgrounds. No matter your age, gender, or job, you’ll be eligible. The benefit of a standard policy is that it puts the control in your hands by allowing you to choose how much coverage you need. Maximum coverage is usually around the two year mark.

There is a second policy, that correlates to your age, and is exclusive to Great Britain. The maximum coverage period is significantly less, at only around a year, but quotes are often less expensive. Why? Because they’re targeting young and (theoretically) healthier people. It’s not as likely that a young person is going to croak and leave the bank with a void, is it?

Why Would You Need PPI?

There are lots of reasons, but it all comes down to a matter if your personal circumstances. You may find that it could benefit you greatly, or, upon further reflection, that it wouldn’t make a difference to your payment plan. You’ll have to decide for yourself whether it’s something that could be worth the investment.

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Image source: http://visualhunt.com/

One big reason you might choose to invest in payment protection insurance is if you have a faultless credit score. In all likelihood, you’ve worked extremely hard to get to that point, and won’t surrender it without a fight. That’s where PPI comes in. It eliminates the risk of harming your credit score because you’re covered. If you lose your job abruptly and unexpectedly, you don’t need to worry.

You should be careful, though, as some lenders will try to convince you that PPI will ultimately lower your interest rate. This isn’t strictly true. You’ll have to analyze the situation on an individual basis to come to a definitive conclusion. You may not need PPI if you look at private loans from companies like Cash Float. It’s also important to note that PPI is not compulsory. You can opt out if you want to.

What Do I Need To Be Aware Of?

The waters start to get a little bit muddy when you get into the depths of PPI. It’s not a one-size-fits-all option. In fact, there are a bunch of clauses that may count against you, so you need to scrutinize the small print before committing to a plan. Before you even think about signing on the dotted line, request a list of exclusions. That means the circumstances in which the insurance company will refuse to pay out. They could include, but are not limited to, the following:

A poor medical history may dictate that you aren’t eligible. This is especially so if you’ve had to take time off work for a long period of time due to adverse health problems. This may not seem like the banks are taking the moral high ground, but they can’t really afford to. If you had to leave work, you wouldn’t be able to make the payments anymore. That’s a problem for both you and the bank to contend with. The bank should have a list of health conditions that are exempt. For example, you can’t predict a cancer diagnosis.

Self-employment is another big one that can count against you. So, if you work for yourself, make sure you ask a lot of questions and get it in writing. Don’t take their word for it. Again, it is understandable, given the nature of your work. Since you have no set income, the bank doesn’t know what to expect from you. Why should they take the risk?

Short contracts are also a big red flag for the banks. Simply put, because they have no assurances about your long-term working prospects. How do they know that you won’t lose your job in a month? Zero hour contracts are now becoming a big problem for a multitude of reasons, and this is one of them. People need assurances about money, and in this instance, you simply won’t be able to offer one.

Working part time could exclude you from payouts. This is because the nature of your job cannot guarantee that you’ll be able to afford to meet the repayments. Picture a scenario in which your partner works full time and you work part time. If you were to separate, could you still afford the repayments on top of your suddenly increased bills? That’s how the bank sees things, so it’s understandable that they’re hesitant about this.

All in all, payment protection could be very beneficial to you, but only in the right circumstances. Never allow a bank to sell you a policy that you don’t need, and make sure you always read the small print before agreeing to any terms. With this advice, you should be able to navigate the uncertain waters of PPI with relative ease.

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Prime Aque is the back-end guy of Self-Help. He is a blogger and WordPress front-end designer. Importantly, he is a husband and a father of three wonderful kids. His firstborn are twin girls. He loves writing and sharing.