Things to Know Before Taking Out PPI for Your Credit Card

11th July 2011

One aspect of finance that has been attracting a lot of bad press in the last couple of years is PPI, or payment protection insurance. This is because regulators have discovered that a lot of PPI providers and lenders have been breaking rules when it comes to PPI sales. For instance, many people were told that they had to take out PPI to get the financing that they needed while some weren't even informed that PPI premiums were already included in the quote that they got. To make things worse, numerous consumers were sold the cover even if they weren't eligible to get claims in the first place.

With all the bad opinions and news that we're hearing about PPI, it would seem reasonable to shun it immediately. However, it would help if everyone understood what PPI actually is and what its real purpose is. Having this knowledge would aid in making us see more clearly about the potential of PPI in light of all the negative criticisms.

What is PPI?

Payment protection insurance, or PPI, is a type of insurance cover that's sold alongside different types of financial products like personal loans, mortgages, and credit cards. This cover is intended to protect the consumer in the event that he/she cannot afford to make monthly repayments for a specific period of time due to accident, sickness, or involuntary unemployment. Based on the policy, a specific amount of money is paid every month to cover your repayment due on the financial instrument in full or in part.

PPI can prove invaluable to credit card holders since it offers them peace of mind and added financial protection in case the day comes when they realize that they don't have the capacity to pay for their credit card bills. You cannot foretell what will happen to you in the future. What if one day your company decides to close shop? Or if suddenly you get into an accident or fall into a serious illness? When one of these unfortunate events happens, your credit standing will get damaged and you might even face court proceedings thereby adding more stress to your already nerve-wracking situation.

Who are suited for PPI?

Having read through the benefits of PPI, you might be thinking of getting one already. However, you should first ask yourself if it's appropriate for you. Look at the following:

Age
Most policies specify an upper age limit. If you've already reached the cap of 65 or 70 years of age, depending on the policy, then you're not qualified.
Employment status
If you're unemployed, retired, a student or a part-time employee, getting a PPI cover wouldn't be to your best interests if it includes unemployment cover since the only ones eligible are those who are in a full-time and permanent contract. Those who are self-employed are also not qualified.
Existing medical condition
Say you have a heart problem that previously prevented you from working before but now you're able to go back to your job. You decide to take out a loan with PPI cover. In the event that your heart condition stops you from working once more, you cannot make a claim since pre-diagnosed medical conditions are not covered in the policy.

What should you look out for in availing your PPI?

There are people with PPI cover who have already paid the premiums but later on were told that they're not eligible to claim on it. It would be wise to consider the eligibility concerns above before you commit. You should also ask the following:

For how long will the policy run?
What are all of the benefits included?
How many days upon claiming will it take before the policy will start paying out?

If you are looking to take out PPI for your credit card, you should understand the terms and conditions of the policy to ensure that it's right for you. You should also watch out for agents who are miss-selling PPI. If you feel that they're not explaining the whole deal to you and if you find that the tick boxes are already "conveniently" marked, then you should think carefully before making your decision.