UK Payment Protection Insurance - Part 2

And if all that doesn't make it hard enough to make a claim, some payment protection insurance policies have to be in force for a certain number of months before a claim can be made. And even if you are successful with your claim, it may take months for the money to arrive and it won't reduce your original debt, just the interest on it. And then, just when you thought it couldn't get any worse, most policies will only cover your monthly repayments for 12 months.

1. Know the score

Payment protection insurance is not compulsory, although many lenders hint that it is by automatically adding PPI to the quote they give you. But you don't have to take PPI to get the loan. And if your lender puts pressure on you to take the cover, look elsewhere for your loan.

2. Avoid PPI

If your circumstances don't meet the terms of the policy, or you can't find a good quote, it might be better to avoid PPI and use the money that it would otherwise have cost you to build up a safety net of cash for emergencies.

If you build up the equivalent of six months' loan repayments, it should be enough to give you some breathing space in the event that your income drops suddenly. And, if that doesn't happen, the money is still under your control instead of swelling the profits of the insurance companies.

3. Go Independent

PPI can be a useful form of protection in certain circumstances, but it's vital that you check the terms and conditions closely. Read the small print of your loan agreement to make sure that you aren't paying extra for it. If necessary, look for an independent company to provide you with PPI because your lender will charge you much, much more.

For example, if you wanted a PPI policy to cover a personal loan repaid over 5 years, the premiums charged by your lender could cost you 20-40% of the amount borrowed. So in order to cover £20000 of debt, PPI could cost you anything between £4000 (£66 per month extra) and £8000 (£133 per month extra) over the life of the loan. In fact, one of the worst cases reported was someone who had a loan for £72000 and £44000 of that was for PPI.

So if you still want PPI try an independent insurance company such as British Protection, Free Insurance or Paymentcare. Typical costs should be approximately 4-6% of the amount covered.

Part 1: Payment Protection Insurance

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