Secrets of Payment Protection Insurance (PPI), lenders don’t want you to know
Published: 23 February 2007
By MoneyhighStreet Staff 1 Comment
Updated: 4 April 2009
In this article we will show you secrets that your lender doesn’t want you to know. We will show you how to save hundreds of pounds on Payment Protection Insurance (PPI) and yet receive the same, if not better, cover.
Lenders want you to buy PPI from them. We show you how to get a better deal.
Firstly, consider all the recent publicity around single premium PPI and that in February the FSA wrote to firms selling this form of PPI to tell them all to stop selling single premium PPI.
What is Payment Protection Insurance, PPI?
If you take out a mortgage or loan, you need to keep your monthly repayments up to date, otherwise you are at risk from defaulting which can result in you losing your home.
This is normally fine if you are working and healthy as loan and mortgage payments become part of your monthly outgoings.
What happens if you become seriously ill or lose your job?
You still need to keep your loan payments up to date, even if your regular income has dried up.
This is where payment protection insurance comes in. It covers your loan or mortgage payments for a set period – hopefully long enough to find a new job or get better.
What lenders don’t want you to know
When we take out a loan or a mortgage, we normally are so busy concentrating on the APR rates and payment amounts, that lenders can easily convince us to take out payment protection insurance at the same time with them.
Lenders such as loan companies and mortgage companies, including high street banks make massive profits from selling you payment protection insurance. Selling you payment protection can be almost as profitable as selling you a loan.
The commission they earn is very high and guess who pays for that? You.
What lenders don’t want you to know is that there is an option.
You do not need to take out a payment protection plan with them. You can often save money by going to a specialist insurance company who offers the same, or better, policies for far less money. They do this by taking less commission, being specialised in this market and by running highly efficient processing and claims departments.
Save money quickly and easily
If you value the benefits of PPI, and the right plan at the right price is a sensible option, then take the time to shop around and don’t just buy the loan from your lender because it seems so easy and straightforward.
Youngsters can save even more with age related payment protection insurance.
Some insurance companies recognise that young people are less likely to long term illness than older people. They can often find jobs more easily and therefore represent less risk. They offer age related payment protection which costs less for younger people. It is unlikely that you will find this benefit with your loan or mortgage lender.
Let’s look at the types of payment protection insurance that is available.
Mortgage Payment Protection Insurance (MPPI)
This form of insurance covers your mortgage payments for 12 or 24 months and depending on the policy covers you for periods of illness and unemployment. Mortgages are often our largest financial commitments so it is sensible to shop around for the best and cheapest mortgage protection insurance.
Loan Payment Payment Protection Insurance
In a similar way to MPPI, this covers the payment of any loans that you might have – secured or unsecured. Defaulting on loan payments can harm your credit rating and even result in the loss of your house, so taking out loan payment protection is sensible, but take care to find the best deal and see if your lender offers age related protection.
Leaving aside loan and mortgage payments for a minute, how would you cope if you lost your job and couldn’t pay for the everyday things in our lives? Like food, clothes for your children and bills. Income protection insurance pays you a fixed amount monthly for 12 months, so that you can keep your finances going whilst you find another job. Once again, shop around and get the best rates and cover. Also try and get age related discounts – it can save you a lot of money every month.