PPI - is it worth it?

Payment Protection Insurance (PPI) provides cover to allow you to continue making payments on financial liabilities in the event that you lose your job or suffer a long term illness. As with all insurance, it is important to understand what you are buying before committing yourself as there are important exclusions or limitations to the amount of cover.

With most people, the mortgage repayment is likely to be the biggest single monthly expenditure. However, there are other costs and expenses that need to be met to ensure your standard of living can be maintained whilst unemployed or ill. If you have limited savings (enough to last at least three months and preferably at least 6 months), then considering some protection from a payment protection insurance policy could be advantageous.

Check the benefits already offered by your employer - they may have a scheme which guarantees your income for a period of time due to illness. It is possible to purchase either unemployment cover or health cover, but it is usual to buy a policy that combines both.

PPI policies will only pay out for a maximum period of 24 months. Most will limit payouts to 12 months and overall benefit payments will be capped to a finite amount. In order to claim under a PPI policy you will need to satisfy a number of criteria. The main items to watch for are:

• If claiming due to unemployment, you must have been continuously employed by the same company for at least 12 months prior to the claim.;
• Make sure to declare any pre existing medical conditions (even ones that haven't been a trouble for a while) before buying cover and see if they will make a payout for a claim;
• Loss of income due to stress related illness and back problems may not be covered;
• You must be between 18 and 65 years of age; and
• Working at least 16 hours per week.

PPI policies provide benefit in a number of areas. These include cover for:

• Mortgage payments - for a fixed period (up to 24 months) and usually capped to a maximum financial payout. Check if this is sufficient to cover your payments in the event of any interest rate rises;
• Credit and store cards - check whether the payout will cover a percentage of the balance on the card or just the minimum monthly payment. This will usually apply only to the balance on the account when you make the claim and not for anything else you incur after that date; and
• Loans - as with mortgage payments, this will be for a maximum period and a maximum amount.

There are a number of PPI providers and you should not be pressured into taking a policy from your mortgage or loan company. Look around and compare both quotes and cover levels to make sure that you get something that is right for you and is affordable. Premiums will vary due to the amount of cover required, your age and medical history. You will have the option to pay the premium as a single upfront amount or as a monthly payment.

For additional peace of mind where expenditure is high and savings are low, PPI may well be worth considering.