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Payment Protection Insurance (PPI) 19 January 2006

    Payment Protection Insurance, or PPI, is insurance that will cover monthly repayments on mortgages, loans, credit/store cards or catalogue payments if you have an accident or sickness and are unable to work, or you become unemployed. PPI is not compulsory - you are not legally required to take out PPI to get a loan although the lender may require you to have such insurance before granting a loan.

    PPI can provide worthwhile cover against unexpected changes in your personal circumstances, but bear in mind its limitations and exclusions. PPI only pays out for a set period of time, generally either 12 or 24 months or the period of the loan. You may not be able to make a claim for an illness you already have or have had before. Stress and back complaints, and possibly other conditions, may not be covered even if you can't work because of them.

    The situation is slightly different for the self-employed. Some policies may cover you if you are self-employed with your own business and you have involuntarily ceased trading because you could not find enough work. Voluntary cessation of trading however will possibly not be covered.

    Ask the salesperson to explain the terms and conditions of the policy and make sure you read the "Key Facts" Policy Summary that the company should provide.

    Consider whether you have other insurance which already covers you, or whether other types of protection insurance may be more appropriate. Would taking out PPI be to your advantage?

    Chairman of the Office of Fair Trading, Quintin Gill MHK, commenting on the insurance said "Remember you don't have to take out PPI to get a loan. Find out first if you are already protected. Consider whether other protection would be more appropriate. Always read the "Key Facts" Policy Summary, especially the exclusions to the policy. Find out whether the policy is a single or regular premium as single premiums (which can be several hundred pounds) are often added to your loan which increases the amount of interest you will have to pay. Think about what you would do when the claims payments stop. As with all other goods and services 'shop around'".

    19th January 2006

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