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What payment protection insurance does Why is payment protection insurance important? Things you may need to ask or think about when buying payment protection insurance

What does Payment Protection Insurance do? top

Payment Protection Insurance protects a borrower's ability to maintain repayments and helps them avoid getting into debt should they be unable to keep up their repayments due to accident, sickness (Disability) or unemployment.

Policies are available to protect most forms of personal credit, including mortgages, personal loans and credit card repayments. Cover is often purchased at the time the finance arrangement is made, but may be available at a later date or taken out as a stand-alone policy

The cover is very easy to purchase, as there are very few eligibility requirements. Typical requirements are that you are aged 18 to 65, or higher in some circumstances, and that you are employed for at least 16 hours a week or on a long term contract or have been self-employed for a period of time.

All policies will have a period at the start of each claim that you will need to wait before payments begin. Once a claim has been accepted, benefit payment periods will vary but typically, claims are paid for up to 12 months in most cases, but some may last as long as 24 months.

Why is payment protection insurance important? top

Payment protection is designed to help pay your financial commitments in the case of accident, sickness (Disability) and unemployment. These circumstances have been proven to cause financial hardship due to a reduction in income, making it difficult to maintain payments on mortgages, loans and credit cards. Here are just a few reasons why payment protection is important

State Help? The prospect of redundancy during uncertain times People are borrowing more Reliance on Credit Cards Savings are often insufficient Accidents do happen Ill-health can be a problem

State Help? top

Many people assume they can rely on state benefit to cover Mortgage Repayments in the event of involuntary unemployment. Borrowers face a 13 week wait before interest only benefit begins, and even then there are restrictions and you may receive only limited assistance. There were an estimated 40,000 repossessions in the UK in 2011, every 14.28 minutes a property is repossessed. Payment Protection Insurance provides a useful safety net and can help you to keep your home.

The prospect of redundancy during uncertain times. top

According to Government statistics, 580.000 people were made redundant in the UK between August 2010 and July 2011 - more than 2500 every working day. There were also in excess of 2.6 million people claiming unemployment benefit during that time. A payment protection policy could have helped many through a financially difficult time.

People are borrowing more. top

Bank of England figures show that people are borrowing more than ever before, with total consumer credit lending to individuals at 31/10/2011 at £208 Billion. The debt charity Credit Action reported that the average household has debts of around £8000 excluding Mortgage. Citizen Advice Bureau dealt with 8910 new debt problems every working day in England and Wales during the year ending June 2011, more than 2 Million that year, suggesting that many are struggling to maintain payments.

Reliance on Credit Cards top

£1276.733.333

The total value of all purchases made using plastic cards each day in September 2011.

Savings are often insufficient top

According to the Institute of Fiscal Studies, around half of the UK population has £600 or fewer saving and around a quarter of the population is £200 or more in debt. In addition, nearly half of us do not save regularly and a third has no savings at all. This lack of saving could cause financial hardship in the event of accident, sickness (disability) or unemployment.

Accidents do happen top

  • Over 208.000 were killed or injured on UK roads in 2011
  • Every year in the UK more than 5,000 people die in accidents in the home and 2.7 million turn up at accident and emergency departments seeking treatment.
  • HSE had received 121,430 reports of accidents at work, 26,061 of those considered major, and in addition, 152 fatalities

Ill-health can be a problem top

When in good health, may people find it hard to envisage suffering from a major or critical illness but, if you are borrowing money, thinking about this now could save financial problems in the future. Statistics from Cancer Research UK and the British Heart Foundation show that:

  • Four out of ten people will be diagnosed with cancer at some stage during their lifetime *
  • Heart disease will kill one in four men and one in six women and remains the biggest killer in the UK **
  • Someone suffers a heart attack every four minutes **

* Cancer Research UK
** British Heart Foundation

Important exclusions

Consumers must not be aware of impending unemployment at the time they buy cover. Policies usually do not cover unemployment occurring within an initial period of time following the purchase of the policy. This time period is usually in the region of 60 - 120 days.

Policies exclude claims arising from pre-existing medical conditions that you are aware of or should reasonably have been aware of when the policy was purchased. Medical conditions about which you had seen, or arranged to see, a doctor about during a specified period immediately before the start date of the policy may also be excluded.

Claims that result from your own actions as a result of drug or alcohol abuse will not be covered.

Is there anything I should ask or think about? top

How long will I have to wait before policy benefit payments will be made?

There is usually a waiting period at the start of each claim before benefits are paid which may be 30, 60 days or longer. Some policies may then pay benefits from that date or from day one of the claim. Payments are usually paid one month in arrears.

How long will the policy keep paying?

Policies will typically pay out for 12 or 24 months or longer or until you return to work, if sooner. Check your policy.

Can I take out a policy at any age?

Policies usually cover you from age 18 up to a specified age of say 60 or 65, but a higher age limit may be available. Ask your insurer.

I am self-employed with my own business. Can I claim if I have to cease trading?

Some policies will cover you if you have involuntarily ceased trading because you could not find enough work. Voluntary insolvency will not be covered. You must also have informed the Inland Revenue that you have ceased trading.

I am not a permanent employee. I am employed on a contract basis. Can I claim?

Some insurers will accept your claim if you have been on a contract for at least 12 months and had it renewed at least once or worked continuously for at least 24 months.

Can I claim if I had a medical condition before I bought the cover which then reoccurs?

Some insurers will accept your claim if you had been free of symptoms for a certain length of time prior to taking out the insurance. Some chronic conditions may not be accepted due to their recurrent nature.

Can I claim for pregnancy or childbirth?

Not unless there is a serious medical complication which is diagnosed by a recognized obstetric specialist.

I only took out the insurance because I knew it was likely that I was going to become unemployed. Can I still claim when this happens?

No. If you are aware at the start date of the policy of it being likely that you will become unemployed the insurer will not pay, whether you had official notice or not.

If I am unemployed and can only get short term temporary work, will I be able to resume claim payments when the temporary work ends, without having to start a new waiting period before the claim is paid?

Some insurers may suspend your claim whilst you are working and start again when the work ends without having to wait again. The insurer will then add up all the period of payment towards the maximum period for which benefits may be paid.

What happens if I am claiming for unemployment under the cover and I become sick and unavailable for work, will I have to go through another waiting period?

Not usually, many insurers allow you to switch without having to go through another waiting period.

When I buy the cover should it be explained to me?

Yes, when you buy the cover the seller should explain the important features and ensure it is adequate for your needs.

Policy terms and conditions can vary between insurers.

Always read your policy document carefully to ensure you understand what you are covered for.

If in doubt, check with your insurer.