PPI Guide

Whenever you apply for finance such as a personal loan or a credit card, you're likely to be encouraged to take out an insurance policy to cover your repayments should you be unable to work because of illness or redundancy. Payment Protection Insurance, or PPI, can be useful in mitigating the financial effects of a sudden and drastic change in circumstances, but there has also recently been some controversy over the way it has been sold to customers, who in some cases were not properly advised on whether or not it was appropriate to their circumstances.There are several things you need to consider before taking out a policy. The first is that, under current financial services regulations, taking out payment protection insurance can't normally be made a condition of being accepted for a loan. In other words, the loan company can't force you to take out a policy, although in many cases they will strongly recommend it, not least because it is generally a very profitable product to sell.Secondly, if you do decide to take out payment cover, you are under no obligation to take out the policy with the same company you're obtaining finance from. You can probably get a better deal by shopping around, and using one of the many price comparison sites across the internet.Although the prospect of having your repayments covered for a while if you're unable to work may seem attractive, before taking out a policy you should check the small print carefully to see whether the policy covers your own individual situation. In some of the mis-selling cases of recent years, borrowers have made a claim on the policy only to find out later that their circumstances at the time of their application rendered them ineligible for the policy and so their claims were rejected outright.Common exclusions for PPI policies include illnesses or conditions which predated the issuing of the policy, not being employed on a continuous basis for at least the previous twelve months, and being self employed, which most standard policies don't cover. Many policies also exclude complaints such as backache or stress, which even though they may prevent you from working, aren't always classed as a bona fide illness by insurers.You should also check if you already have insurance cover in existing policies, such as that offered by your employer as part of your working conditions. All this should be explained to you before you sign up, and should it not be, you still have the legal right to a full refund during the 14 days 'cooling off' period after taking out the insurance.Finally, if you think that a PPI policy might be a good idea when taking out a new loan or credit card, it's always worth seeking the advice of a professional financial adviser, rather than just accepting the policy presented to you by the lender. While PPI can be of great benefit if things go wrong in your future, if you get an inappropriate policy it might not be worth the paper it's written on.