A payment protection plan (also known as payment protection insurance - PPI for short) is a very useful safety net to have and, bought wisely from a genuinely independent provider, can be very moderately priced.
It does very much what it says on the tin: it protects the many varied and diverse payments you’re accustomed to making on a monthly basis, so that if you have to stop working because you’re sick, recovering from injuries in an accident or become involuntarily unemployed, you will receive a replacement to continue to pay the bills.
We all have payments that simply have to be met each month. From the mortgage or the rent, to the electric, gas and telephone, to our credit card repayments, to repayments on our loans – and all that’s before we’ve even started to buy in the weekly shopping!
The problem with the credit repayments – the money we already owe to other people – of course, is that unless we pay them, we’re likely to find that they’ll very soon start taking action to recover what they’re owed. Fail to pay your mortgage and your home could be repossessed, fail to pay the rent and you could find yourself homeless, the gas or electric and you’d be living in a cold, dark home. Failure to keep up your payments on a loan or your credit cards could mean an adverse credit crediting at best and a county court judgement against you at worst – the picture really does become quite grim.
So that’s why payment protection insurance cover – such as income protection insurance - offers you a valuable safety net, taking over the payment of some or all of those monthly outgoings when your normal income is disrupted by sickness, accident or unemployment (which is why you’ll also see it described as accident, sickness and unemployment insurance. It isn’t just redundancy protection, it is incapacity too).
Payment Protection Insurance Cover – insurance for all reasons.
We’ve mentioned a whole range of monthly outgoings you might need to be covered. Payment insurance is effectively a generic name given to all kinds of payment protection insurance, (eg: income payment protection insurance or loan payment protection insurance or mortgage payment insurance) which can be used for a variety of different reasons. Each one operates on the same basic principle – if you’re off work through sickness, accident or involuntary unemployment, the policy pays out in the form of an alternative income.
The different types of cover and their various uses are given generally self-explanatory titles – such as income protection insurance cover, credit card payment protection insurance, mortgage payment protection, and loan protection.
You can even protect the payments on your credit card with credit card protection. You may find that you require credit card payment protection in order to ensure that any credit card payments are still met in the event that you become unable to work. Credit card cover will make sure that not only are the minimum payments met on your card – which means no fees or added interest for non-payment – but it will help maintain your credit rating.
Or, for example, you might choose income payment protection insurance cover simply as a prudent way of ensuring that you’ll have at least some of the income you’re used to still coming in if you’re incapacitated or made unemployed via involuntary redundancy. In that case, you’ll decide in advance just how much of your income would need to be replaced and arrange an income protection UK policy accordingly. When getting an income protection quote, it will typically be based on the amount of income you’ve decided you need to cover – up to a set limit. Usually, the premiums are calculated in blocks of each £100 of income in the claims benefit payout. There will generally be a maximum amount of replacement monthly income you can insure and this is expressed either as a specific sum (£1,000 a month, for example, is typical) or as a percentage of your normal gross pay (65% of your gross monthly income is also a fairly typical proportion).
There is also a maximum time limit for the payment of benefits under your income insurance cover. In the general scheme of things, periods of 12 or 24 months are common, though it’s sometimes possible to take out such insurance for shorter periods of cover. Naturally, the longer the maximum period of cover, the more expensive the income protection premiums will be.
When asked about income protection insurance cover, people often give one of two reasons why it isn’t for them and why they don’t need it. They point to a group scheme run by their employers and argue that it does the same thing as any insurance they could buy privately, or, somewhat optimistically, others claim that the Welfare State wouldn’t let them go un-housed or hungry if they were unable to work or became unemployed.
Most of the people who think that the State will provide if their regular income is cut short by sickness, accident or unemployment, have not had to claim State benefits!
It is true that you would be unlikely to starve and that help with housing costs may also be available. However, the vast majority of people would find the benefits the barest minimum on which to survive and would need to turn to their savings or incur debt for as long as the illness lasted, the injury took to recover or until they found alternative employment. In the absence of your own income protection insurance cover, these would be expensive but necessary options.
There is something called Statutory Sick Pay, of course, to which anyone who is employed under a contract of service and receives a gross wage of at least £87 per week is entitled. This sick pay becomes payable after you’ve been off work sick or injured for four or more days. The weekly rate, however, is currently just £72.55 and can be paid for a maximum of just over 6 months.
As far as assistance with housing is concerned, help is even more restricted. If you have a mortgage, then government help with that is not available until you’ve been off work for more than nine months. What’s more, if your mortgage is for more than £100,000 no assistance at all will be available.
If you are unemployed, very limited help from the State is available in terms of something called Job Seekers’ Allowance. Once again, however, the rates are far from generous, currently paying out just £35.65 a week to those under 18, £46.85 to those aged between 18 and 24, and £59.15 to those aged over 24.
Unless you enjoy a particularly generous employment-based protection plan, if you want to include some form of income insurance mortgage protection against involuntary unemployment, and if you agree that State benefits are barely enough on which to survive, the sensible recourse is to arrange your own income insurance protection unemployment insurance to cover redundancy.
This puts you totally in control. You choose the amount of income you wish to protect (up to the maximum amount agreed by the insurer) and pay a relatively modest premium for each £100 of cover that you’ve elected to buy.
Then, in the event of your being unable to work because of sickness, injury or unemployment, the unemployment protection insurance pays out the replacement income you’ve agreed each month. The maximum period over which these claims benefits are payable are also agreed in advance with your insurer and are typically either 12 or 24 months (the longer the payment period, obviously, the more expensive the premiums). In either case, however, you will have secured the peace of mind of a realistic replacement income (the level of which you’ve decided) in order to make as speedy as possible a recovery from your illness or injury or in which to find a new job.
You can also take out mortgage payment protection insurance, (also known as MPPI for short) another part of the payment protection insurance family. For any home owner, the monthly mortgage repayment, together with the associated payments of premiums for life insurance, and buildings and contents insurance, is likely to be their most costly outgoing. That’s more or less fine when the expense is budgeted into a regular source of income. The difficulties start when your regular source of income is disrupted if, for example, you need to take time off work because you’re sick, injured or unemployed. What you need then is an alternative source of income that’ll take care of your mortgage repayments and, ideally, those other regular payments closely associated with it; namely your monthly life insurance premiums and your buildings and contents insurance.
And that’s exactly what a mortgage payment protection insurance UK policy does for you. In return for a fairly modest monthly premium, the policy pays out a sum agreed by you at the start of the cover, and will pay the whole or part (you choose) of your monthly mortgage payments in the event of your incapacity or involuntary unemployment.
In the current climate of a general tightening of the mortgage market, lenders might be moving towards repossession proceedings more quickly than they have done in the past. As a result, around 75 homes each day in the UK are presently subject to repossession. Naturally, perhaps, the government would like all home owners to take the prudent course and arrange a mortgage cover UK policy to protect their homes. Currently, however, only around a quarter of us do so. However, mortgage protection insurance could be the solution for anyone worried about how they would keep up their mortgage repayments if disaster struck.
Mortgage insurance cover insures you against the risk of your being unable to make your monthly mortgage repayments if you’re off work through sickness, the need to recover from an accident or become involuntarily unemployed.
You can insure your mortgage repayments (together with any related life insurance and buildings and contents insurance monthly premiums) against becoming unable to work due to accident, illness or unemployment, or, if you are worried about the cost of the mortgage protection cover, you can insure just a against redundancy with mortgage unemployment insurance only. Either way, you’ll have a valuable head start in meeting the commitment any time you’re incapacitated from working or find yourself involuntarily out of work if you have a mortgage protection insurance UK policy.
Why is Payment Protection Insurance important?
Mortgage insurance protection cover is important because you never know when a common enough illness might turn into something more complicated or a physical injury might take longer than expected to repair. If several weeks then turn into several months off work, you could find that the unexpected loss of income makes it extremely difficult to keep up your mortgage repayments. Certainly, it would quickly eat into any savings you might have and, once gone, you’ll find it very difficult to build them back up again.
Similarly, in today’s fast-moving world, there are very few jobs that are as secure as they might have been in the past. Although you might be accustomed to well-timed career moves – when you’re calling the shots – the unexpected termination of employment, through compulsory redundancy, puts an entirely different complexion on things. However, well qualified you are or marketable your skills might be, you know that you could be facing at least several months of unemployment whilst you look for that new job. Mortgage protection insurance can be low cost way of getting peace of mind.
Given some of the statistics recent research has revealed, some people might ask whether mortgage cover is something they can afford not to have. Many people are seeing the invaluable benefits of mortgage protection unemployment.
In fact, when it’s set against the almost unthinkable prospect of losing your home, mortgage insurance is remarkably affordable. Premiums can work out at just a few pounds each month for every £100 of mortgage cover you buy.
Whatever you do, it is important that you shop around for your mortgage protection quote. Never just accept the first mortgage insurance quote you are offered. Apart from checking out the cost, the terms and conditions of any mortgage protection UK policy are very important too, as we will discuss further on.
Like the other insurances highlighted here, loan protection insurance will help meet your monthly loan and credit card commitments should you become unable to work due to accident, sickness or insurance – as with the other insurances mentioned. The beauty of loan payment protection insurance is that not only does it stop you falling in to arrears with your monthly loan repayments should you become unable to service them, but it also means that your credit rating is not affected, so getting future borrowing will be not scuppered.
If you’re planning to buy loan cover, income, mortgage payment insurance, or credit card protection insurance cover, there are things to look out for are those you’d need to pay particular attention with any of the payment protection insurances available.
Certainly, whenever you take out any insurance – loan insurance, income protection and mortgage payment insurance, redundancy cover or unemployment cover – it’s important to understand exactly when any claims benefits would be paid. With most such policies, for example, there is an initial “deferred” period from the start of the cover, during which you are unable to make any claim. This period is typically 3 months or 6 months, but can be as long as 9 months.
You also need to be aware of the “qualifying” period for any accident, sickness, redundancy insurance claim – that is to say, the minimum period during which you’d need to be incapacitated from working or involuntarily unemployed, before any claims became payable. The better quality redundancy insurance and accident sickness insurance products will probably stipulate a 30-day minimum, while others may not payout until you’ve been off sick or injured or out of work for 60 days or more.
On a closely related aspect, it’s also important to find out whether the unemployment income protection insurance or credit card insurance benefits are paid during this qualifying period, or whether the qualifying period itself is treated rather like an “excess” on the policy – during which time, of course, you’d need to make good your loss of income through sickness, injury or unemployment yourself. Once again, however, the better quality unemployment insurance policies will backdate the benefits payable under your policy to the very first day you are off work.
Finally, it’s something we all know we really ought to do more carefully, but how many of us do actually read all the “small print” contained in insurance policy documents such as our income insurance mortgage payment protection cover? It’s no less important with any of the payment protection insurance cover, where it’s sensible to read and understand all the issues relating to your eligibility for the cover, its terms, conditions and exclusions.
In fact, you’ll notice that it’s the providers who are genuinely serious about selling you the most appropriate (for you), top-quality payment protection insurance cover who are the most eager and willing to explain (in refreshingly clear and straight forward terms) the whole contents of your insurance policy. These are the independent insurance providers, who arrange standalone payment protection insurance cover that is not tied into or dependent on any particular lender or mortgage company. Such “independents” will not only offer you the best, most impartial advice, together with a better quality insurance policy, but will actually sell it to you for a fraction of the price you’d otherwise pay to a big-name high-street company.