You’re excited after getting approved for an auto loan. However, your lender has offered you payment protection insurance. The rep claims a PPI policy will protect you against emergencies if you cannot cover your bills. You want to say yes, but you’re not sure what the program entails. 

What is PPI? 

A PPI policy will cover your payments on a loan such as an auto loan, credit card, or mortgage. You’ll pay a sum of money, and the lender will cover your expenses if you encounter an emergency.

An emergency could be in the form of an illness, injury, or job termination. While this may seem like a no-brainer, a PPI program isn’t for everyone, and it works to your disadvantage in some cases.

This article will enlighten you about PPI in greater detail. Let’s explore. 

How Can I Use the Funds?

The plan usually covers your minimum payments for a certain period. If you have a credit card insurance plan, the credit card company will pay a certain portion of your balance. In many cases, the company will pay between 2 to 5% of the overall balance. 

Other programs allow you to spend the funds on short-term expenses, such as groceries or mortgage payments. 

Terms and Conditions

Before you sign up for a PPI policy, determine if your situation will qualify for protection. Let’s say you sustained an injury. To qualify for the protection policy, you must meet the following standards:

  • You must have been working at least a few months when you signed up for the program
  • The injury has crippled you for at least 30 days before you invoke the program 
  • You must be under the supervision of a doctor
  • The disability renders you unable to complete any job and not just your primary job

The injury in question cannot be a common problem either. Stress or headaches are common ailments and wouldn’t render a person eligible for a protection plan. That said, the standards depend on the company offering the plan.

Other Disqualifying Factors

In most cases, your job status will determine if you’re eligible. For example, many people working less than 16 hours a week aren’t usually qualified.

Further, you may not qualify if you know that you’re about to become unemployed. One example is contracting status.

If you’re a contractor who knows your term will expire in a few months, you cannot take advantage of the program. If you’re self-employed, you may not qualify as well.

If you work in a family business, you usually cannot claim redundancy. You also cannot claim redundancy voluntarily; the situation must render you involuntarily redundant. 

Additionally, you’re disqualified if you’re aware of a medical issue and will need payment protection. You’ll especially become disqualified if you fail to disclose your full medical history. When applying for a protection program, be honest about your medical past to avoid paying for a program you don’t qualify for. 

Overall, the PPI will last for a limited period and may end before you fully recover. In some cases, the program’s duration will only last a few weeks. In other cases, the protection could last up to two years. 

Optional Coverage 

A protection plan is optional and isn’t part of a loan package. Your lender may offer a protection plan, and you must decide if the extra expense is worth it.

Not everyone needs this program. If you’re dealing with a bank, reps tend to offer extra products when processing your loan approval. Otherwise known as cross-selling, the reps tend to use high-pressure salesmanship to cajole customers into programs they don’t need.

One reason they do this is because of the extra interest. The lender will add the cost of the PPI to the loan balance. A PPI could extend the lifespan of your loan, forcing you to pay more interest in the process.

Overall, you may not need this plan if: 

  • You have a life or health insurance plan 
  • You have a protection policy through your current job
  • You have firm job security 
  • You have a guaranteed income stream (i.e. retirement benefits)

To know if the program is best for you, ask yourself about the full cost of coverage and the chances of redundancy.

If you’re a healthy person who rarely falls ill, the program may not be the right option. Also, compare the cost of coverage to how much you’ll pay each month. Will the plan protect you from major financial turmoil or temporary discomfort?

If you answered temporary discomfort, the plan may not be for you. PPI plans are for emergencies that could cripple a working person without protection.  

Shop Around for the Best Price

You don’t have to accept the first offer from your lender. You can find your own policy or contact an insurance broker for assistance. An insurance program is a good idea if you don’t know what kind of protection you need.

A broker will also help you compare the prices of several insurance companies. 

PPI Drawbacks

Many critics contend that PPI payments are overpriced and don’t offer much coverage. For example, a lender could charge as high as 25% of the balance while offering little protection. 

The cons are notable, but the quality of the plans depends on the lender. That’s why it’s important to research the reputation of the lender. 

You may also encounter a scenario where you’re eligible for the program, but your claim was denied. You can discover more here if you faced an unjust denial. 

Is Payment Protection Insurance Worth the Cost?

Payment protection insurance depends on your situation. If you’re secure in your job, it may be a waste of money to purchase a plan. 

If you’re concerned about job security, a payment protection policy could be the right choice. To understand the terms fully, read the disclosures and agreements before signing on.

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