To be able to decide if you should take payment protection with your loan you need to fully understand what payment protection offers and how it works. You must then consider how appropriate this is to your personal circumstances. To do this the following article offers guidance to assistant you, however it is advisable to read every protection policy carefully as each will differ in the cover they offer and the exclusions they make.



Loan payment protection cover is sometimes also referred to s PPP (Payment protection plan) and ASU (Accident, sickness and unemployment benefit). The cover can provide insurance against loss of earning due to accident, sickness, hospitalisation, disablement, redundancy and life cover. Each policy will differ in the collection of each of these events so read the policy booklet carefully. You should also take note of the following;

Eligibility

Check that you are eligible for the policy because if you are not and you take the policy it will not pay out if you make a claim even if you have been paying the premiums. Most policies have eligibility rules in regards to age, how many hours you work a week and how long you have been in your employment and under what type of employment contract you work.

Deferment periods

These are period of time after the even for example being made redundant that the policy will not pay out for. A typical deferment period may be 6 months. Generally the longer the deferment period the cheaper the policy tends to be. This is because the provider recognised that during the deferment period the customer may well get another job and go back into work the so the chances of the claim being made reduces. However, when the deferment period is matched effectively to the individual's circumstances then the cover may provide a very cost effective option. For example if you are paid in full for the first six month of being off work when are sick then a policy with a six month period would kick in as soon as your employer decreases or ends your sick pay. A policy without any deferment period is known as a ?Day One policy? as it will come into force from the first day that a listed event occurs.

Deferment period and Waiting periods

These two should not be confused. A waiting period is the time necessary to wait before the provider will process the claim. A typical waiting period is 28 days. These are put into place for administrative purposes to avoid claims being made after a day or two illness. However, it does not effect when the policy will pay out from. For example a day one policy with 28 days waiting period will mean that the provider will begin to process the claim after 28 days but will back pay the benefit from the very first day the listed event took place or began.

Waiver of premium

This means that while a claim is being made (while you are not in work) you do not have to pay your monthly payment protection premium. These sometimes have maximum periods that this is available for. Also the option normally comes with an additional premium itself!

Exclusions

Care should be taken when reading this part of the policy booklet as policies do vary dramatically. There are however some common exclusions for example pre-existing conditions. If you have any pre-existing conditions or complaints that you have visited a doctor about you should find out exactly what your policy defines as ?pre-existing?. Some policies may define this as a condition that you have consulted a doctor about in the 12 months prior to taking the policies some will go back further. Also if you have had a recent ?all-clear? you should find out if your policy will pay out if the condition re-occurs in the future.

Cash back

Some policies offer cash back facilities for not making a claim on the policy after a certain amount of time. You should be aware that most of these policies carry conditions with this usually includes a certain amount of time that you have to hold the policy for.

Loan payment protection and Income protection policies

Loan payment protection is usually specific to the loan itself in that it will pay the loan monthly repayment. Income protection policies pay a percentage of your income. Although income protection policies can cover 100% of income most offer below this amount and so may not be enough to also cover the additional loan that you are considering.

Advice provided about the policy

If the person or firm selling the protection policy is authorised and regulated by the Financial Services Authority to provide payment protection they should offer you one of two levels of service.

The First is ?full advice and recommendation?. This is where the adviser assesses all your individual circumstances and existing cover and from that gives advice and recommends a suitable product.

The second is ?information only? whereby information about the policy or different policies offered is given and you as a consumer make your own decision if it is suitable for you.

The person or firm should make it clear what level of service they intend to offer you before selling this policy to you.