What does a payment protection insurance policy cover?

Payment protection insurance (PPI) is taken out with any kind of loan, and its aim is to cover your repayments for the loan should you fall victim to an accident, become sick or unemployed. PPI kicks in should you be unable to work, leaving you with one less bill to worry about as your monthly payments are taken care of. An additional feature of this cover is that should you die within the term of your loan, PPI can clear the loan outstanding (less arrears).

From the first day that you are unable to work, loan repayments are made by PPI, although in many cases the first payment will be subject to a minimum period of not working such as 30 or 60 consecutive days. Furthermore, to encourage you to get back to work, the PPI payments will only last for a certain period, such as 12 or 24 months. The total monthly repayment covered may be restricted, which could be to around £1000 per month for example.

Some people say that they have kept some savings aside with the aim of covering their loan payments, meaning that they don't need extra protection. But what happens if you are out of work for longer than you expected, or for longer than you saved for? Payment protection insurance is a safety net to fall back on. It will help you to make your loan repayments should you run into difficulties.

So, how can you be eligible for payment protection insurance? Well, firstly you have to be over 18 years of age and under 65. You also need to be actively working, either self-employed or employed for at least 16 or so hours a week. You can't be off sick long-term, but you can be on statutory maternity leave from the employment. Obviously, you should also be resident in the UK.

It does get a little bit more complicated if you are self-employed or on a fixed term contract. Should you be self-employed or a company director you are only covered for unemployment if you have permanently stopped the occupation, not just having difficulty finding business whilst still operating. As a company director, your company should have been involuntarily wound up.

If you are on a fixed term contract, you are eligible for cover if you have been working for the same employer for two years of continuous service or have an annual contract renewed at least once. Should you have only a 6 month contract, with your contract having been renewed at least once, you will only be covered if your contract is terminated prior to its date of expiry and payment will only be until the expiry date.

 

 

 

© AskFinancially.com 2008

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