Advisers warn on limits of PPI
Alternatives to payment protection insurance could be more suitable for many people, according to many financial advisers. They point to two limitations of PPI that could leave families financially exposed:
Term of claim: with most policies payments continue for a maximum of twelve months for any one claim. So long-term disability or illness is not really covered.
Waiting periods: If you make a claim you then have a waiting period of usually three months before you can make another claim.
A long-term income protection policy that runs for a longer period for 5 or 10 years or even up to retirement age will provide long-term cover against illness or disability. Premiums are related to age and occupation, but at ages up to 40 are affordable provided you’re in good health.
The main point is that while people worry about making their loan repayments if they’re ill, they don’t think about all the other bills like council tax, utilities and household bills generally that will also have to be paid.
It follows from this that there isn’t much point in your buying PPI when you take out a small personal loan if you haven’t taken out protection against your far larger mortgage repayments.
For the same reason, you should refuse the expensive payment protection insurance offered by credit card companies if you haven’t bought mortgage protection insurance.
Protecting your payments checklist
Mortgage first. Cover your biggest outgoing before you worry about the smaller ones.
Shop around. Get a quote to compare your lender’s PPI with that from an independent insurer, which will usually be far cheaper at around an monthly premium of £5 per £100 of monthly benefit.
Don’t waste. If you have enough cash in your savings account to pay off your credit card debt, don’t waste money on buying insurance as well.
