Advantages and disadvantages of obtaining a PPI

19-06-2021

To fully understand the advantages and disadvantages of taking out a PPI, we must first understand what it is. Payment Protection Insurance, or PPI, is an insurance policy designed to provide financial coverage for the payment of a loan, mortgage, or credit card.

Given that British residents are apparently over £ 3 trillion in debt, it is more than likely that by reading this, you too are in debt. If so, you will surely have obtained a loan, a mortgage or a credit card in your life. This is where the PPI comes into play.

When you go into debt, you may worry about facing repayments. PPI will be offered to you as an added sense of security. If you get sick, injured, or lose your job, the PPI will cover your debt payments to give you respite while you recover, receive treatment, or find a new job.

So what’s so good about getting a PPI?

Payment protection insurance is exactly what it says. It insures you for when you cannot make payments on a debt or a credit agreement. As such, it offers peace of mind and the peace of mind that if you can’t, your payments will be made.

Remember, the goal of insurance is to provide a safety net for when you really need it. PPI is just like any other insurance policy in that it helps you financially when you need the money. If you’re worried about your debts, or would have a hard time paying them off in case something goes wrong, a PPI might be perfect.

But what are the downsides of a PPI?

Most policies will only pay for a set period of time, often 12 or 24 months. If you are still unable to pay your debts, you will need to find an alternative way to cover the repayments. There may also be a maximum amount of coverage as determined by your monthly premium payments.

There are a number of “hidden” provisions, often in the fine print of the policy. An example of this is when your coverage doesn’t really cover the full cost of the loan. If this is the case, the policy may not be worth the premiums you are paying; A five-year loan with a PPI of just one year could add a disproportionate level of interest to your repayments.

PPI is not necessarily the most suitable product to cover your lost income. It can provide financial coverage against unforeseen circumstances, but many other policies offer it as well, so consider the limitations and restrictions of standard PPIs.

The Financial Services Authority, the UK’s financial regulator, may have put in place a number of changes to ensure that financial service providers treat customers better, but PPIs have still faced a number of complaints and accusations in the last years. Consider these many complaints before deciding to get a PPI for yourself.

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