Do you assume that the State will step in to assist you in light of involuntary redundancy or prolonged absence from work due to accident or illnesses? This is not a good assumption to make as it relates to your family’s financial security. Only a small percentage of applicants get government support and the amount is usually small. Therefore, you need to explore the opportunities for unemployment cover in the open market. Loan cover, mortgage payment protection insurance (MPPI) cover, and income payment cover are three insurances that make up payment protection insurance, a sector used for redundancy and incapacity benefits.
Although each product pays benefits through monthly replacement income cheques, their intents are a bit different. Loan cover is designed to help you maintain your credit by managing monthly debt obligations like loans and credit card balances. Mortgage payment insurance allows you to make your monthly mortgage repayments when job income is lost. Income payment protection is used to manage ongoing financial needs that don’t go away because your job does.
Focusing on loan cover terms and conditions
Be aware of the key terms and conditions that make loan cover and the other payment covers what they are. Length of benefits payouts, starting point of the first benefit, and the maximum benefit allowed are among the important features that you should consider when selecting a policy.
Of course you do need to make sure that you are able to collect benefits before buying a policy. Not everyone is. To be eligible, you have to be employed full time for a period of at least six months. People employed part time or retired people are not eligible to collect benefits. Neither are those with pre-existing medical conditions.
If you are eligible, let’s start with a look at the typical benefits payout period. Some policies pay you benefits over the course of 12 months, while others payout for a 24 month period of time. Obviously, you should know how long your benefits would last.
You should also know when your first benefit payment would arrive. How long can you wait between your last job pay cheque and the first benefits payment? If you are like most on a tight monthly budget, you might have to consider only those products with a starting point of 30 days after the insured event. With more flexibility from savings, policies that start benefits after 60 days or 90 days might be okay.
The highest levels of benefits you can get do vary depending on where you buy your cover but are typically around 1500 Pounds or half your normal gross monthly income, whichever is lower, every month. Benefits are tax free, which helps you get more out of them. You could take on a lesser amount but this is not advisable unless you are comfortable with your ability to make it through a prolonged period without your normal work income.
Covered events with your loan cover or other payment protection
Involuntary redundancy, accidents or illnesses are the events that you can insure with a typical payment protection policy. You can by a policy that protects both, or you can by a policy that protects just one or the other. It is important to understand why you would consider only covering one event so you get the best protection.
Some people just protect for redundancy because their employers give them benefits for accidents or illnesses. Other people need to buy their own benefits for accidents and prolonged illnesses, but they save on premiums by not protection for redundancy. This is not always a good idea, but it can be in the right situation. If you have a high education or job skills level, you might be able to get work quickly. Perhaps you have savings to help you get through a period unemployment.
Carer cover is a unique protection that some providers include in your policy and sometimes at no extra charge. Consider the advantages of having this protection in your policy before you agree to buy a plan. This cover pays you the monthly benefits if you have to leave your job for a period time to take care of a sick or injured family member. For some, this might be the key benefit you rely on.
Compare independent insurers with financial institutions
The best way to get your best loan cover or payment protection option is to know where to go. Financial institutions are large banks that deal in many finance products. Independent insurance specialists are companies that have expertise in insurance and can be more helpful in your selection and claims processes.
Many consumers are also noticing that they can get much cheaper policies through an independent specialist. In fact, loan cover is generally about ten times more expensive if you get it from a financial institution. Mortgage cover is four times more expensive from a bank, and income payment cover is about five times more costly.
It is not just the price that makes the difference in value. Financial institutions have come under fire in recent years for some of their selling practices. Many would bundle their expensive loan cover and mortgage cover with loans and pressure borrowers into buying them with the loan. Others have used mis-selling tactics by selling policies to people not able to collect benefits.
The shape of payment cover changed in 2005, thanks to a super complaint by Citizen’s Advice, a leading consumer advocate group. The complaint addressed the bundling and mis-selling and it was addressed by the Office of Fair Trading, who, after an initial review, requested that the Competition Commission examine the sector further.
After its review, the Commission issued several recommendations for change in payment protection insurance. One of the resolutions is a seven day waiting period during which lenders cannot sell loan cover to new borrowers. This frees you to explore the market and get a better deal from an independent insurer. The Financial Services Authority fined many high street companies in 2007 that it found guilty of mis-selling. With the better rates and the improved awareness of the market, you have no reason not to consider protecting your family with a good loan cover policy.