Accident Sickness or Unemployment (ASU)

What is payment protection insurance and what does it cover?

Payment protection insurance is designed to help you keep up with payments on your debts if you're unable to work because you're ill, you have an accident or you're made redundant.

The insurance company will pay the monthly repayments (or a percentage of them) on your behalf for a fixed period of time - usually 12 or 24 months - or until you return to work (whichever is earlier).

 

What payment protection insurance doesn't cover?

Usually, it won't cover:

  • the first 90 daysafter you stop working - you need to be able to keep paying for this period yourself
  • pre-existing conditions (illnesses you know about already)
  • people who are retired or self employed

 

Do you need payment protection insurance?

You might want to consider payment protection insurance if:

  • you have a mortgage, a loan or credit card repayments, and
  • you want to make sure you can continue to pay them if you fall ill or are made redundant

If you think you need payment protection insurance you should take extra care. Read through the policy documents and ask for advice. At Constant we are here to help, so please feel free to contact us.

 

Who doesn't need payment protection cover?

You probably don't need payment protection insurance in these situations:

  • You could get by on your sick pay. You have an employee benefits package which gives you an income for six months or more, so you can keep up your payments.
  • You have enough in savings to keep up with payments.
  • Your budget is very limited.

 

Pros and cons of payment protection insurance

Pros

  • It can ease your money problems if you're made redundant during a recession or period of job uncertainty, when it might take you longer than you would normally expect to get another job.
  • If you have little or no savings and quite a lot of debt, and you need to pay your mortgage (or any other loan secured on your home), then mortgage payment protection insurance can help.

 

Cons

  • PPI policies only cover a specific debt - say, your current credit card bill. If you spend more on another card, the extra debt won't be covered. If you claim, the money will usually go straight to pay off that debt - you can't use it for anything else.
  • Depending on the policy you may have to wait up to 90 days before you can claim - by which time you may have found another job, or you might have got better and gone back to work.
  • You pay every month while your loan, or mortgage payments last - which can be up to 25 years. But if you claim, you only get payments for one or two years at most, depending on your policy.
  • If you're self employed or work on contracts or do any temporary work most standard policies won't cover you.
  • Most policies won't cover you unless you've been employed solidly for the previous 12 months (six months in some cases).
  • Most policies have an exclusion period - if you become unemployed within three to six months of taking out the policy, you won't be able to claim.

 

Is payment protection insurance good value for money?

Premiums vary greatly from insurer to insurer so make sure you seek advice.

 

Payment Protection Insurance is optional. There are other providers of Payment Protection Insurance and other products designed to protect you against loss of income.