Payment Protection Insurance – Is It Worthwhile?
Payment protection insurance or PPI is a long-running contract providing consumers with debt repayment and compensation if they are unable to pay because of certain events they might find themselves in. PPI is designed to help people when faced with such things as illness, unemployment, redundancy, or sudden death.
It is not compulsory and can only be taken out if you borrow money that needs to be paid back within the first 60 days of the loan agreement starting. It also has limitations on how much you can claim for any one incident. If PPI claims are rejected by your bank because it was mis-sold then you may face significant financial loss that cannot be compensated for by a personal loan or other hardship fund.
PPI is very lucrative as it can provide a certain amount of income if you are unfortunate enough to become ill, unemployed or unable to pay back your debt. However, it is not worth taking out if you are in a good financial position and you will not be able to afford the claims if they are rejected.
You need to be aware of the following:
• Your PPI claim may be rejected due to mis-selling
• You may lose your money for up to 5 years and have no way of recovering this loss
• You may need life cover also. This can cost an additional £3000 per year for a person aged over 55 and £2000 for someone under 55.
• If your credit score drops because of an incident – you lose the protection offered by PPI
• If you have a long-standing history of problematic credit – this will negatively affect your ability to apply for PPI and other cards
• You also need to read your terms and conditions carefully as the fine print can be very complex
The reason why it is not worth taking out is because it does not provide any additional financial security. If you take out a loan or credit card with a high interest rate then the claims paid can actually mean that you have more debt than you would otherwise. It could be argued that PPI can even do more harm than good. If your claims are rejected you will lose the income that you would have received from the PPI premium. On top of this, if your credit score is low then you may end up being denied credit cards and loans because of a negative report from your bank. In order to get these personal loan or credit card deals you need to get a good credit history and keep it high over a long period of time.
If you want a very good and simple way of understanding how much money you need in case something happens to prevent you from repaying your debt then read here .
There are plenty of financial products on the market that do not include PPI as an option. If you are in a good financial position then take out a deal with no PPI included. This will mean that you will not fall foul of mis-selling and it will be easier to get a good deal on credit cards and loans. Remember, you need to have sufficient savings to cover any repayments if something happens or you may risk getting into debt and paying high interest rates for many years into the future.
The cost of insurance is charged on an annual basis and is 5%-10% of your loan or credit card liability at most. The cost of this protection is not excessive and will provide you with some peace of mind. However, like all insurance schemes you have to weigh up the costs and benefits. If PPI is not included in your loan or credit card deal then the cost of a private PPI plan can be less than £20 per month. The cost of this could be spread across a long period of time for an annual fee that is very small compared to having to pay back your debt if something happens to prevent you from doing so.
If you cannot afford the premiums on a PPI policy then it might be better to go for other options such as life cover or critical illness cover. Both of these options cost much less than a PPI policy, although they do not protect you from things like unemployment or redundancy.
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Posted by : Duncan at 03:48 AM
I am someone who has been on PPI for 8 years now. I have managed to get myself down from QE2 level to QE4 (Germany's lowest rating). I have been told that it is my own fault for not doing enough but what I can't understand is the logic behind it. When a consumer has a problem with their mortgage the only way they can recoup the money is through taking out another mortgage. They will then make a decision as to which mortgage they can afford and keep the repayments to a minimum. They then repay the minimum and make the mortgage last for as long as possible. This all sounds quite logical but looking from a different point of view it would be showing someone exactly when they are going to face a problem with their finances, and they seem to have no self control about when this is going to happen.
I can help you choose your best course of action but I need some information from you first. I am interested in knowing if you have been able to make use of any other products or services, and if you have been successful. I would be particularly interested in hearing from people who have used credit repair services who could give me some feedback on how they were able to make use of them. I am also looking for some statistics on how many people have had problems with their credit ratings because they have missed payments on their loan or credit card. If there are a lot of people out there facing this problem then maybe there is the scope for us to go after the finance companies that are responsible and get compensation. Thanks in advance and good luck.
*** Post updated at 3:16 AM on 27th Nov. 2013/ Updated: 3 hrs ago
"There is a simple test that can be applied to any financial or investment product to determine its suitability for a particular individual which is given below. The process of applying this test will clearly identify the best available product for you."
1) Does it fit your lifestyle? If the answer is "No", don't buy it, or, if you are tempted to use loan, credit or investment products that don't fit your lifestyle, apply this test first. Your lifestyle will be affected by your decision whether or not to exercise debt and risk-free investments around PPI .
2) Is there a better product offering the same services? If the answer is "Yes", don't buy it, or, if you are tempted to use risky loan, credit or investment products that don't fit your lifestyle, apply this test first. Your lifestyle will be affected by your decision whether or not to exercise debt and risk-free investments around PPI .
3) Has it been taxed at source? If the answer is "No", don't buy it.
4) Is it a product from an approved supplier? If the answer is "No", don't buy it.
Conclusion
If you can find a product that passes all four tests without being overcharged, you have found the perfect product for you. Your lifestyle will be affected by your decision whether or not to exercise debt and risk-free investments around PPI .
5) Is it a current product?
6) Is it an investment that yields a guaranteed return of capital? If the answer is "No", don't buy it.
6) The return on capital should be at least equal to the interest rate on any debt.
7) Can it be invested in today? (E.G.