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While few are of the opinion that Payment protection insurance, commonly referred to as PPI is a protection you cannot do without, there are also a few that think otherwise. In this write up, let us find out the finer aspects of the same and whether or not this type of insurance protection can bail you out in the time of need and in the event you face an unforeseen incident and especially if you have financial obligations to meet. Prior to getting into the depth, let us know what PPI is in the first place.
Payment protection insurance (PPI)
Almost every individual during his lifetime avails loans of some kind. PPI is basically a protection that is rendered for a short period of time to the individual that has availed loan of some kind. This insurance policy covers you for the repayment of the loan that you are entitled to repay over a period of time.
There might be instances when you are not able to make repayment of the loan due to certain unforeseen events that might include an illness that you might suffer from, or you are compelled to stop work due to an accident, or if you lose your job. But it is important that you are able to distinguish between the right coverage and one that is inadequate and will not meet your requirement. Ideally, the policy that is right will cover the payments in event your source of income stops.
How does PPI work?
It is designed in such a way that your loan repayment will be met even if you are not able to attend your workplace. Studies have revealed that majority of the people that avail loans, regardless of whether it is mortgage, credit card loans, or any other type of loan payment, prefer to opt for this insurance cover. The biggest advantage of this insurance cover is that you do not fall into a vicious cycle of debt and take the wrong decision of taking on more financial obligations to meet the already existing financial commitments.
What does PPI cover?
Basically, the PPI will cover the following instances-
- Conditions that compel you to stop working
- Workforce layoff
This can be better understood with the help of an example. Let us assume that you have taken out a mortgage and your income stops all of a sudden. The PPI will make arrangements for a regular flow of income for a stipulated period of time so that you are able to make the mortgage repayment.
What does PPI not offer coverage for?
There are certain conditions that the PPI does not offer coverage for and these are as follows-
- The first 3 months since your income stops, you will not be covered. During this period you have to make arrangements for the loan repayment on your own.
- Illness that are pre-existing and you were aware of
- If you are unemployed
- If you have retired from your services
Prior to taking the plunge, you need to find out whether this is a good option for you. Also, it is important to know the alternatives and different types of loans that you can avail to meet your financial commitments and for that you can click here. It is usually said that PPI works best if you have mortgage payments to make or credit card payments.
Alternatives to PPI
Aside from the above option, there are few other avenues that you can try out. These options are as follows. They are equally good but you just need to know whether the insurance coverage will meet your requirement.
- Short term income protection insurance or STIP
- Income protection insurance or IP
If you have a family member to support you in the time of crisis, you will perhaps not require one but being self sufficient is always a better idea.