Income Payment Protection Insurance Explained

Income payment protection insurance, also known as income payment protection, can, for some, be a confusing name for a simple insurance product. Income payment insurance is a short-term insurance product that is actually part of a broad portfolio of payment protection insurance products. This should not be confused with income protection insurance which is instead a long-term insurance that has higher premiums, and pays benefits up until retirement at times. Income payment protection insurance provides monthly income support for 12 to 24 months over the payout period. It covers brief involuntary redundancy, illness, or accidents.

Income payment protection insurance does not replace the full monthly income of the insured person, but it covers a significant portion. For many people, it is the only source of short-term unemployment support. Income protection insurance, or income payment cover, is a security for many Brits that cannot rely on the State to meet their unemployment needs.

Unlike income protection insurance, income payment protection insurance is part of the payment protection umbrella of insurance protections. The other two common types of payment protection are mortgage payment insurance and loan payment protection. The core benefits and basic covers of each type are the same. There are some distinctions, however, in terms of their purposes and features.

Income Payment Protection Insurance from Burgesses

Mortgage payment insurance is similar to income payment cover with regard to covered events and basic benefits. Its purpose, however, is to help the insured meet their most important monthly debt obligation. Homeowners risk repossession of their homes if they fail to meet their mortgage obligations. The financial assistance offered by payment protection has helped many Brits retain their homes and financial security. Mortgage payment protection does not replace full monthly income, but it does cover a significant portion of it. Mortgage protection is routinely sold in combination with mortgages by banks and High Street lenders.

Loan payment insurance is very similar to mortgage payment insurance, buts its purpose is a bit broader. Brits are taking on more revolving debt and credit card debt. For many, covering monthly loan obligations is very challenging when job income is lost. While the protection does not replace full income, it does generally cover full loan obligations. Many plans also include a provision for a modest monthly income supplement to be used for basic expenses. As with the mortgage payment cover, loan payment plans are regularly sold in combination with loan products. This packaging of products has actually come under fire from consumer watch groups in recent years.

Many consumers are unfamiliar with payment protection insurance cover and some even have the protection but are unaware. Part of the consumer lack of knowledge can be attributed to mis-selling and unethical practices by some banks and lenders. Some consumers have been pressured into taking on payment insurance with the belief that they needed to in order to obtain their desired loan. Others have faced even more deceptive selling by lenders who have packed expensive payment cover premiums into loan repayment costs. By doing so, they can hide just how expensive the cover is by spreading it out over time. Unwitting borrowers often do not even realize they have protection. It is merely noted in the fine print of loan disclosure documents.

Citizen’s Advice, a leading consumer advocate group, filed a super complaint on behalf of British consumers in 2005. Along with the allegations it brought to the Office of Fair Trading (OFT) regarding packaging of products, the group also charged that some banks and lenders have sold payment cover to people ineligible to receive benefits. Retired people, part time employees, and people with pre-existing medical conditions have all been targets for payment cover even though none can collect payouts.

Income Payment Protection Insurance

As a result of the complaint, the OFT and Financial Services Authority (FSA) each conducted investigations into the payment protection insurance industry. The FSA concluded its research by imposing severe fines and sanctions against banks and High Street lenders it felt were guilty of using unfair mis-selling practices. Some of the practices have since calmed a bit. However, some consumer groups are now warning consumers to beware of similarly deceptive techniques now being used by online lenders. The OFT appointed the Competition Commission to perform further research and it is awaiting the results before taking more action.

Perhaps the greatest benefit of the public scrutiny of the payment and income payment protection insurance industry has been heightened consumer awareness regarding the deceptive selling techniques, benefits of payment insurance, and opportunities presented by standalone broker. Broker specialists are being recognized as the best source of valuable payment protection. Brokers maintain relationships with most of the leading insurance providers and have access to their best product offers and rates. This is partly why brokers are able to offer payment insurance at premium rates that are 40 to 80% lower than rates typically offered by banks and High Street lenders.

Brokers tend to be more customer service oriented, as well as having great rates. Most independent insurance brokers belong to industry associations that maintain high standards of business conduct for members. The self-regulated practice within broker networks are viewed as more ethical than the mis-selling used by some large institutions. Brokers are also conveniently accessed given their expansion through the internet. Consumers can easily find brokers through their web sites, and quickly retrieve quotes of selected products and rates based on the consumer’s needs.

Unlike income protection insurance, income payment protection insurance, mortgage payment protection, and loan payment cover all protect the short-term unemployment needs of covered people. These products offer a much greater value proposition to consumers now empowered by their control to select the right cover at the right price. Educated consumers are no longer at the mercy of mis-selling, but consumers need to look out for themselves. The State has also withdrawn itself largely from any assistance for unemployment. They have deemed that it is the responsibility of individuals to protect the financial stability of their homes and families. Because of the greater access to good payment insurance at low costs, through independent brokers, there is no reason anyone desiring protection should not have it.