What is PPI?

Many people know generally what PPI is, but they find it hard to describe easily. Payment Protection Insurance or PPI is, as the name implies, an insurance policy that protects loan payments, credit card payments and other financial repayments if you are unable to do so. You may know PPI under different names, such as Loan Protection Insurance or Sickness and Unemployment coverage. It is not the same as a disability insurance.

PPI policies can be issued for mortgages, credit cards and personal loans. If you purchase a high-value items, such as a boat, furniture or a car, on credit, you might opt for PPI coverage on those balances. PPI premiums are usually added to credit instalments and should be noted as separate entries on a voucher or invoice but included in the total amount due.

In general, a PPI policy will grant coverage if you:

become unemployed through no fault of your own,

succumb to an illness, or

are involved in an accident that temporarily prevents you from working.

PPI policies differ in coverage limitations and restrictions, so know well what conditions apply before you sign any PPI purchase agreement.

Some PPI policies pay either to a set amount on the covered credit line or a percentage of the outstanding balance. Select policies may cover the entire installment amount due, but time frames or maximum financial ceilings may be limited. Typical time periods are either 12 or 24 months, after which repayment responsibility is returned to you.

Coverage is usually denied if you are retired, self-employed or unemployed at the time you apply for credit or are applying for the insurance coverage. Most policies also restrict or deny PPI coverage if you have a debilitating or pre-existing medical condition that prevents you from working. Existing policies might cancel coverage if you become disqualified during the term of the insurance from an action that was self-initiated or if you were at fault.

While PPI insurance is voluntary, creditors may reevaluate credit worthiness if the policy is declined. Ensure you know not only coverage limitations, restrictions and maximums but also coverage requirements and conditions. Know your rights and responsibilties, as well as those of the policy issuer.