If the threat of redundancy is very real to you or you worry about losing your income due to becoming unable to work due to accident or illness, then there is a way to remove this stress and have peace of mind with an innovative product that gives unemployment cover and redundancy cover. Payment protection insurance – or PPI – provides you with a monthly amount that is tax free, in the event that you are displaced from work through unexpected circumstances.
Income protection insurance does what it says – it protects your payments (such as a mortgage or loan) or can provide a general income, should you be made involuntarily unemployed or be off work for an extended period of time due to incapacity. Both these events can leave you stranded financially and can only add to any stress you are already suffering.
So, should one of these events happen to you and you lose your income, the payment protection policy will pay out a monthly amount (which can usually be up to 50% of your gross monthly earned income of £1,500, whichever amount is the lesser), enabling you to meet your bills and other costs.
Payment protection policy terms and features can vary among the different providers, so it is important that you ensure that you understand the cover provided before you buy your protection insurance. Here we look at the typical policy offerings.
Most income protection policies have a waiting period after the covered event happens before you can make a claim. This can be anything from 30 – 90 days after you are made unemployed or become unable to work, so check the policy documents carefully to ensure that you get the unemployment protection and redundancy protection that best suits your circumstances. For example, would it really be viable to take out a policy that does not pay you out anything until 3 months after you lose your income? Would you be able to survive financially? Most people will opt for a policy with the shortest waiting time possible in order to maximise their benefits.
Payment protection insurance from Burgesses
Once you have made a claim on your protection insurance policy, you will receive the benefits for up to twelve months. If you find new employment or recover within this period, then the benefits will cease. As stated before, payment protection policy features and benefits can vary among providers and there are some that will offer up to 24 months’ cover, however, these will often come at a higher price to reflect the extra coverage purchased. Either way, 12 or 24 months should be long enough for the average worker to get a new job and recover from injury or prolonged illness.
As you can already see, a payment protection insurance policy can really be a financial lifeline at a time when you will be worried about money; how you will pay your bills; and how you continue to care for your loved ones. However, the good news is that this sort of financial protection does not need to be expensive.
Looking for payment protection insurance
When looking for mortgage protection insurance or loan protection insurance, remember that you are free to shop around for the protection insurance cover, you do not have to take the plan offered to you by your mortgage lender or loan provider. Historically, as proved by lots of independent research, the high street banks and lenders charge more than they need to for the cover - but more about that in a while.
A loan protection insurance or mortgage protection insurance policy from an independent provider can cost from just a few pounds every month for every £100 worth of cover you require. When you consider that an average 30 year old with a mortgage repayment of £700 a month could protect themselves against the financial fallout of becoming unemployed or falling ill for less than £25 a month, you can see how cost effective the product can be.
Of course, this figure can vary depending on where you buy the cover from, with the cost above, while being very real, also being one of the lower ones. The traditional providers of income protection insurance such as the high street banks and lenders, who often sell the insurance alongside a loan or mortgage, are known to often charge more than they need to for the cover, in order to bolster their profits. Experts estimated that the PPI sector was a £5bn profit maker for these providers, which, quite rightly, attracted a lot of negative coverage about the sales and value of the product.
Investigations were carried out by the Office of Fair Trading and the Financial Services Authority, both of whom found severe failings in the sales of this cover. A subsequent referral and an in depth review of the PPI industry by the Competition Commission - who is an independent public body which helps ensure healthy competition between companies in the UK for the benefit of customers, companies and the economy – confirmed that there were flaws in the selling of protection insurance.
It was found that mortgage protection insurance and loan protection insurance had in some cases been mis-sold to people who were not eligible for the cover (such as those of retirement age or part time employees) or had been packaged in with the cost of the loan or mortgage without the customer knowing.
Obviously, this left a bad taste in the mouth of those involved and tarnished the reputation of what is in effect, a product that is a financial life saver. This was quite unfair on the protection insurance product as it was the sloppy and deceptive sellers of the cover that were at fault and not the insurance itself.
However, because of this very high profile investigation in to the PPI sector, the payment protection insurance industry has gone through a lot of positive changes in recent years, meaning that borrowers are no longer feeling coerced in to buying their lender’s products. Consumers are now free to shop around for mortgage cover and loan cover and can make what can be substantial savings on the cost of their protection, making payment protection insurance a cost effective way of protecting your finances against the unexpected.
Carer cover with payment protection insurance
Another benefit that some policies offer in addition to unemployment cover and redundancy cover is carer cover. This is where you are covered should you need to give up your employment in order to become a full time carer for a loved one. In this event, you will receive a monthly sum for 12- 24 months, depending on the individual policy terms and conditions.
While the benefit described above is something that is not typical to all payment protection insurance policies, the core elements of a typical payment protection insurance policy are the accident, sickness and unemployment cover. Most payment protection policies will offer these two levels of coverage as part of a package whether you are looking for mortgage cover, loan insurance or income protection.
However, you are free to just choose one of these areas to protect against. You can elect to have either accident or sickness cover only (also known as incapacity cover) or unemployment insurance only (also known as redundancy insurance).
You may only require one element of protection if that is what your circumstances dictate. For example, your employer may offer a very generous sick pay scheme and so you may wish to take out cover against involuntary redundancy only.
Similarly, you may be worried about becoming too ill to work and want accident and sickness protection only, believing that unemployment insurance is not something you need to worry about as you would expect a healthy severance payment. In that case you may decide that you don’t want redundancy insurance. It is your choice as to the level of cover you take but before you make any decision, do always weigh up the pros and cons of the policy you are considering to ensure that you get the protection you need.
Just as there are different levels of cover, so there are different types of payment protection insurance. There are the debt-specific mortgage protection insurance and loan protection insurance policies which help meet the monthly repayments of specific debts with the monthly income. And there is income protection insurance which provides a general income for whatever purpose you wish.
Income protection is a non debt-specific form of payment protection. Cover is taken out to safeguard your essential repayments against the possibility that you could suffer unemployment or incapacity.
The money you receive back will go a long way towards you keeping up with all the essential repayments that have to go out each month (even grocery bills can soon add up, leaving you wondering where your money has gone) and could be used towards any repayments that have to be maintained each month. You could use the policy for keeping your home lit and warm and for feeding your family. It can be used for your rent or mortgage payments; fuel and clothing. The decision is yours. With an income protection insurance plan, you will have a guaranteed income for a set period of time which will allow you to budget and keep your home running smoothly.
As an aside, this payment protection insurance policy should not be confused with the permanent health insurance (PHI) type policy called income protection insurance. This is a policy that pays out only in the event of illness and can run for many years. It does not cove run employment and because of the very nature of the cover offered, will be much more expensive than a payment protection insurance policy. You may also need to undergo a medical examination before you are accepted for a policy. Do not confuse the insurance we are discussing to here with the PHI type cover.
Mortgage payment protection insurance or mortgage payment protection covers a specific debt repayment - your mortgage. Mortgage insurance or mortgage protection also can help cover associated costs such as home insurance; life insurance; and council tax. This means that should you become unable to work due to incapacity or unemployment, you will still have an income with which to maintain your mortgage repayments.
If you believe that the Government would step in and provide for you in your time of need, then think again, as you could be disappointed. The State does provide financial assistance but there is very strict criteria to meet in order to get mortgage support. Those who have savings over a set amount or whose partner works full time would not receive a penny. Even if you were eligible for State assistance, under new legislation you would have to wait for 13 weeks until you could make a claim and even then any help is given up to the first £200,000 of your mortgage only.
With a mortgage payment protection policy you will receive a monthly tax free sum should you lose yours, which means that you will not have to worry about your mortgage repayments and the threat of losing your home to repossession.
Like mortgage insurance, loan protection insurance pays a monthly sum that helps maintain the repayments on a specific debt – in this case, a loan. By helping you maintain your loan repayments, as with mortgage protection, loan cover stops you attracting late or missed payment fees; additional interest; and, a damaged credit rating. A damaged credit rating means that any future borrowing you wish to take out could be refused or lent to you at a higher interest rate due to you being more of a ‘risk’ and being more likely to default on payment than someone with a perfect credit file.
As with most insurance policies, you will need to meet certain criteria in order to have the mortgage protection or loan insurance cover.
There are certain reasons why an individual might not be eligible for mortgage cover but typically you will need to be a permanent resident of the UK, Channel Islands or Isle of Man who is in full time employment (over 16 hours a week); your job should not be temporary, casual, or seasonal, nor a period of training (such as an apprenticeship) or for a specific task. You will also need to have been in full time employment continuously for the six months prior to taking out the cover.
Any pre-existing medical conditions or accident or sickness that occurred before the start date of the insurance will not be covered and there is also typically a 120 day initial exclusion period for Unemployment protection or Carer Benefit.
And if you were aware of any job losses or company restructure or merger with another company, before policy started, then you would not be eligible for unemployment cover.
These are typical requirements of most payment protection insurance providers, though some will add in more, so do check the small print very carefully.
Along with checking that you are actually eligible to take out the loan or mortgage cover, you do need to check the exclusions within the policy document, these are the things that could render your policy useless in the event of incapacity or unemployment.
It goes without saying that unemployment benefits will generally not be paid in the case of misconduct which contributes or leads to your dismissal; resignation, voluntary unemployment or voluntary redundancy.
Similarly, pre-existing medical conditions before your policy started will usually be excluded from the cover as well as ‘common’ reasons for being off work – stress and backache. However, do check the policy you are considering to ensure you understand the coverage provided.
Now that you have a good understanding of the portfolio of payment protection insurance products and what they can do for you, here is a recap of considerations you need to make before you buy your cover:
- What type of cover? (Loan protection, mortgage protection or income protection?)
- What level of cover? (Accident and sickness only; redundancy cover only; or all three?)
- How long do you want the benefits to be payable for in the event of a claim? (Up to 12 or 24 months?)
- How long do you want to wait after you become incapacitated or unemployed before you start to receive an income? (30, 60 or 90 days?)
- How much payment protection cover do you want? (Remember that providers have different limits)
- Are you eligible for the cover and what are the exclusions?
- Where are you going to buy your cover? (Remember, standalone redundancy insurance or unemployment insurance providers often offer cheaper cover than the high street banks and lenders)
By bearing these pointers in mind, you can ensure that you get a policy that really gives you all round cover and at a price that suits your pocket.
Finally, if you already have an existing payment protection insurance do bear in mind that you do not have to stay with your current payment insurance provider. If you find a better deal, in most cases you can switch providers - and pay less for the cover!
Guide to Payment Protection Insurance | Protect your finances with payment protection insurance