Advantages and Disadvantages of Taking Out a PPI
To fully understand the advantages and disadvantages of taking out a PPI, we must first understand what it is. Payment Protection Insurance, or PPI, is an insurance policy that is designed to provide financial cover on a loan, mortgage or credit card repayment.
With British residents seemingly in more than £3 trillion of debt, it’s more than likely that reading this, you too are in debt. If so, you will almost definitely have taken out a loan, mortgage or credit card in your lifetime. This is where the PPI comes into action.
When taking on debt, you may be worried about coping with the repayments. PPI will be offered to you as an additional sense of security. Should you fall ill, be injured or lose your job, the PPI will cover your debt payments to provide you with breathing space while you get better, have treatment or find a new job!
So, what’s so great about taking out a PPI?
Payment Protection Insurance is exactly what it says it is. It insures you for when you aren’t able to make repayments on a debt or credit agreement. As such, it offers peace of mind and reassurance that if you are unable to do so, your payments will nevertheless be made.
Remember, insurance is intended to offer a safety net for when you really need it. PPI is the same as any other insurance policy in that it helps you financially when you need the money. If you’re concerned about your debts, or would struggle to repay them should anything go wrong, a PPI could be perfect.
But, what are disadvantages of a PPI?
Most policies will only pay out for a certain length of time, often 12 or 24 months. If you keep unable to pay your debts, you will need to find an different way of covering the repayments. There may also be a maximum amount of cover as determined by your monthly premium payments.
There are a number of ‘hidden’ clauses, often in the small print of the policy. An example of this is when your cover doesn’t truly cover the complete cost of the loan. If this is the case, the policy may not be worth the premiums that you are paying – a five year loan with only one year’s PPI could add a disproportionate level of interest to your repayments.
PPI is not necessarily the most appropriate product to cover against your loss of income. It can provide financial cover against unforeseen circumstances, but many other policies also offer this, so you should consider the limitations and restrictions of standard PPIs.
The Financial sets Authority, the UK’s financial regulator, may have put a number of changes in place to ensure financial service providers treat customers better, but, PPIs have nevertheless faced a number of complaints and allegations in recent years. Consider these multiple complaints before deciding to take out a PPI for yourself.