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Payment Protection Insurance
Payment Protection Insurance, (also referred to as PPI, or Loan Repayment Insurance) is a special insurance product designed to help policyholders to cover their monthly repayments on loans, mortgages, credit cards or any other debt that is currently outstanding. In other words, it provides financial support when the insured needs it and protects the insured from default.
You may be unable to pay the debt due to unexpected changes in your circumstances: an accident, sickness, disability or because you suddenly become involuntarily unemployed. If you become unable to work, the insurance company will cover minimum repayments against the loan or overdraft on your behalf for a fixed period of time. This type of insurance pays out for the period of 12 or 24 months, depending on the particular policy and the insurance company. This period is typically predetermined before you sign your policy papers. Payment Protection Insurance covers individuals against circumstances that are likely to prevent them from earning their salary which they use for servicing their debt.
Whatever type of policy the policyholder selects, he/she is obliged to pay a monthly premium to the insurer, while the insurer takes an obligation to arrange the loan payments of the insured at times he/she is unable to do it.
There are several forms of this optional insurance in the USA, related to mortgages, personal loans, auto loans and credit cards. As a rule, you must be employed for at least six months to be able to purchase this insurance coverage. In order to qualify for Payment Protection policy, you have to be from18 to 65 years old and be employed at least 16 hours a week on a long-term contract, or be self-employed for a specified period of time.
It is likely that you will be offered PPI by the company when you take out a mortgage or other loan. You can purchase it from the same place you got your loan, or as a separate policy from insurance brokers or over the Internet. Note that PPI coverage is not required in order to be approved for a loan. Purchasing insurance separately at a later date can save you quite a considerable sum of money.
Payment Protection Insurance policy bought with a mortgage, credit card, or any other type of loan, can double the cost of borrowing, as the lender may add the cost of the insurance to the loan and then charge interest on both.
Payment Protection Insurance can come in standard and age-related types. Age- related policies tend to have a lower monthly premium if you are still young. The older you are, the higher the premium.
There is a waiting period before the payments will start: you may have to wait from 30 to 90 days after an accident or illness or after continuous unemployment before the insurance coverage begins. The length of the waiting period will naturally affect your premium payment. The cost of this type of coverage will depend on such factors as your age, the state of your residence, the type of policy you select, the amount of coverage you would like to obtain, and your credit history. In case you have experienced problems making loan payments before or you have a low credit score, you monthly premium is likely to be higher.
Having a Payment Protection Insurance policy helps maintain the insured's current credit score. The policy assists in keeping up-to-date with loan payments, and your credit score remains unaffected even in times of financial crisis.
Review all clauses and exclusions of the insurance policy prior to determining whether a particular policy is right for you. For example, some policies do not provide a payout if you have a part-time job, or you are working on a short-term contract. Or the policy may not cover self- employed individuals. In order to claim on the unemployment part of the Payment Protection policy, you must have been employed by the same company for the last 12 months on a permanent contract.
Some policies won't allow you to receive a payout in case you are unable to work because of a pre-existing medical condition, i.e.illness you already have or have had before. Illnesses such as cancer, heart attack and stroke may not serve as a claim for the policyholder since they are not considered critical nowadays. Other conditions, such as stress may not be covered either. It is vital to be aware of the complete list of health-related issues which are excluded from coverage.
Make sure you qualify for submitting claims. Be very well informed about the Loan Protection Insurance terms, conditions and exclusions before you sign a contract. In case the company hesitates to provide you with all the necessary information, it is definitely a red flag and you should look for coverage elsewhere.
It is important to review your personal financial situation in order to determine that getting a Payment Protection policy is a wise decision for you. See if purchasing this type of insurance will be cost-effective in your particular case.
Do your best to find a reputable and ethically responsible insurance provider. For instance, you may need to contact the consumer advocacy facility in your area. They should be able to direct you to reputable companies. The insurance company should give you a Policy Summary, which includes the key features, benefits, exclusions and limitations of the policy. Remember that within 30 days you have a legal right to cancel the policy and get a refund if you change your mind.
Premiums through large banks and lenders are usually higher than independent brokers. Consider looking for a discount insurance group that offers Loan Protection Insurance. Find the policy which answers your needs and present situation best of all. For example, in case you are not currently working, you may need only the coverage that focuses on accident and sickness.
Some people may not need to buy this type of insurance at all because they can be already covered through their jobs. This coverage usually comes in the form that offers disability and sick pay for about six months.
Payment Protection Insurance can be very useful when you take out a loan and want to protect yourself against the unexpected circumstances. You want to be sure that no matter whether you will have a change in jobs, relationships or health, it won't leave you struggling to make your repayments and Loan Protection Insurance will cover you. That being an ideal scenario, Payment Protection Insurance is still not for all, and requires a profound understanding of your financial situation and a thorough research into terms and conditions of the policy you are offered.