Payment Protection Insurance
Payment Protection Insurance PPI is designed to make the interest payments on a loan if you are unable to work because of illness. It helps you cope with that particular expense but is no substitute for income protection insurance.
Payment Protection Insurance is a type of sickness and accident insurance and often will also pay out if you become unemployed or ill. The payouts, which are tax-free, are for a limited period - usually a maximum of one or two years. Often it is not worth taking out this cover because:
- It is costly relative to the size of payout.
- Unless the loan is secured on your home (see below), keeping up the repayments is unlikely to be a top priority if your income suddenly dropped.
- These policies are riddled with exclusions so you need to check carefully that a particular policy would pay out in your case given your health and employment details.
Where a loan is secured on your home, you could lose your home if you failed to keep up the payments. This applies to mortgage and any other loan secured against your home, in this situation it may be worth taking out loan payment protection insurance (called 'mortgage payment protection insurance' if you take it out to cover a mortgage).