Payment protection insurance should guard your personal finances in the event of unemployment or reduced earnings. But is it worth it? The Daily Show investigates
David Kerr, money expert from www.bonkers.ie, talks us through the pros and cons of getting payment protection insurance.
What is payment protection insurance?
This is an insurance which will guard against loss of income in the event of unemployment or reduced earnings.
As usual, the devil is in the detail.
Most institutions offering loans or credit of any sort offer people Payment Protection Insurance, which is an insurance policy that would pay out a sum of money to help cover your monthly repayments on mortgages, loans etc if you are unable to work for certain reasons covered by your policy, such as death, illness or accident, or you become unemployed through no fault of your own.
How much does it cost?
That depends on exactly what the policy is there to protect - for a personal loan, expect to pay 10% of the loan repayment; for credit cards it would vary from card to card but an approximate figure of 70 cent per €100 outstanding on the card. and of course if you are paying your credit card balance off each month, it probably doesn't make sense to take out payment protection insurance.
What should people consider if thinking of taking out PPI?
Like all insurance policies, there are a number of factors to consider when taking out a policy. The general rule of thumb are to balance the ongoing cost of the policy against the likelihood of having to make a claim and how much more difficulty you would be in if you found yourself in the position where you would have made a claim but did not have insurance in place.
If you are seriously considering PPI, get your bank or credit card company to fully explain the full cost of the insurance over the cost of the loan, or give you examples of how much you would pay for an average credit card balance that you would expect.
Also make sure that you fully understand the circumstances under which the policy will pay out - you might be taking insurance for an event that it will not cover.
What reasons do people take out PPI ?
Typical reasons people take insurance out would be to protect payments against unemployment, illness or death. Like all insurance policies, you must be accurate with the information you provide your insurer - this is no different.
The policy will not pay for example if you are aware at the time you take out the policy that you will be made redundant in the future. Likewise, for medical conditions, you must be up-front and ensure that you let your insurer know if you have an existing medical condition.
Do they pay out?
If there is a legitimate claim made against the policy, there is no reason to believe that the claim will not be paid.
One very important point to note, is that there may be an upper limit to the amount the insurer will pay out, either in time or in money.
For example, if you take PPI against your credit card and you make a valid claim, your policy may only pay out the minimum amount for up to 12 months. This is important to consider if you are thinking about taking this insurance out.
Why are we now seeing advertisements for people to claim back what they have paid out?
A new industry has emerged which exposes some cases where people took out payment protection insurance without it being fully explained, or in some cases where they did not need it at all. This industry has started to gain some notoriety with high profile TV campaigns or on the web claiming a no win no fee basis for claiming back premiums paid out and in some cases getting damages.
Should we trust these guys?
It's a difficult question - if you are to explore taking a claim, ask yourself if you knew what you were doing when you took out the policy. If you did, and you asked questions and were given reasonable answers, then the chances are that you won't be successful with a claim. If on the other hand you found out retrospectively that you were paying PPI without expressly requesting it, then you may have a case. If you want to get in touch with someone to discuss it, you could make contact with the financial regulator, the NCA, or Citizens Advice Bureau. They may be able to help you with the basic question before you go down the road of hiring a claims expert to make a case against your insurer or bank.
Some information about home insurance premiums?
The insurance industry has paid out a total of €765 million during the last 14 months because of three major environment-related events - snow of 209 and 2010, the ash cloud and the floods of 2009.
To put that into perspective, the previous 9 years of claims paid out due to weather events totaled €358million.
This does not include the 'normal' level of claims made routinely for fire, theft etc.
Why is it important?
The actuaries working in these firms, the guys who work out how much risk there is for a particular home, will likely be looking at the increased frequency of weather related incidents and subsequent claims - it means that we will all likely see an increase to our home insurance premiums, and in some severe cases, some people might find themselves unable to find any insurance coverage at all.
So be vigilant, use the 4 steps to cheaper insurance and make sure you shop around.
