PPI: Do You Have It, and How Much Does It Really Cost You?

September 5, 2012 | Posted By: Kelsey Pennington | Categorized in: Finance
Payment protection insurance is meant to prevent people from getting in over their heads when the unexpected happens, and a good PPI plan is a godsend when there's no other way to make ends meet. However, it's not a net gain for everyone, and some people don't even know they're paying for it. Some lenders hard sell PPI, and others attach it to loans without explicitly telling borrowers that it's part of the package. Neither practice is ethical, and it's almost always an indication that the loan someone has gotten is far worse than what he could get. In other cases, the value of PPI may be outpaced by savings and other financial tactics, and each person needs to weigh the advantages and disadvantages of PPI before sinking a lot of money into a payment insurance policy.

Unethical Lenders

PPI exists for two reasons: to protect individuals and to protect lenders. It's almost always in the lender's best interest to have clients who purchase PPI. Banks also stand to make a lot of money from the monthly premiums, and just like with other forms of insurance, the ideal situation is one where the individual covered by the policy never has to cash it out. What that means is that certain lenders try to push policies onto their customers that are laden with so many exemptions that very few people who actually need PPI will be able to benefit from it, and it's much more likely that someone will end up with a PPI policy whether they want one or not. The best way for borrowers to protect themselves is to read the fine print and to run far away from aggressive lenders.

The Cost of Exemptions

PPI policies cover monthly payments for one year or longer when someone is unable to make any income, but that only applies under certain conditions. Some policies won't cover unemployment. Almost every PPI policy will cover someone in the event that he sustains an injury and becomes temporarily disabled, but some policies place limits on the extent of the injuries they will cover, and some medical conditions aren't covered at all. This is primarily what determines whether a certain PPI policy is a good investment. If the most likely cause of lost income is a pre-existing condition that relates to something more severe that a PPI policy won't cover, it would be better to rely on savings instead.

When PPI Matters

Someone who does physical labor for a living is almost always better off with a PPI policy. Physical injuries are far more likely to happen on a construction site than in nearly any other kind of workplace, and having some kind of coverage can drastically reduce the amount of stress that's incurred during the recovery phase. PPI doesn't generally cover permanent injuries, however; that's what things like mortgage life insurance plans are for.

Recovering Money From PPI

Someone who has been wrongfully sold PPI can get quite a bit of money back by simply calling out what his lender has done. The process is a bit different depending on the exact nature of the grievance, the information on hand and the amount of time that's passed, but people who have purchased PPI under false pretenses can almost always get something back without contacting a claims handler.

PPI is a Great Product for Some People

People who make far more money than they're sinking into loans would probably be best off saving a large chunk of their cash in case anything comes up, but people who put 30 percent of their income toward their monthly debt payments could benefit immensely from the right PPI policy. The most important thing is to pick something that covers as many contingencies as possible, and to choose a lender that's honest and up front about payment protection insurance. With the right strategy, PPI can be a huge boon for people who are trying to build a stable financial future.

Additional Resources

Avoid Holding Two Mortgages
Can You Use a Reverse Mortgage?
5 Common mistakes that can screw up a mortgage refinance
How To Safely Use Business Credit Card
Credit Card Signup Offers: How Many Is Too Many?


Kelsey Pennington is a guest writer for www.ppiclaims.uk.com where you can find information on mortgages, interest rates and special financing savings.
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Comments
September 5, 2012 | Posted By: FrugalFreak
Ok, I have a question, My bank is offering a "free" checking based $2,000 life insurance policy, What is the catch for the bank?
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