If you're taking out any sort of loan, be it a mortgage, personal loan, credit card or an “indirect” loan such as a store card, you're likely to be offered payment protection insurance, or PPI. It is intended to cover the periodic (normally monthly) payments should you find yourself out of work, sick or injured. Normally there is a waiting period of 28 days before you can claim and payments are then made for varying periods, according to your policy, usually up to 12 months. Always read the small print of any policy – PPI is no different, there are wide variations in cover and you shouldn't rush in to anything without knowing all the facts.



There's been a whole lot of bad press regarding PPI – take the case of a store card, for instance. You may decide to take out a store card with the express intention of gaining the discount offered on the day – which is often the way in which salespersons get you hooked on to the store card in the first place. If your sole intention is to get the discount and pay the account in full as soon as possible, then you're hardly likely to need PPI, but it's amazing how many people are bamboozled into it.

PPI is an optional insurance with any type of loan and not something to be taken out regardless of circumstances. It should never be automatically included in a loan and when looking at a loan quotation, you should make sure that it's not hidden away in the small print. Ask for a quote with and without PPI, just to make sure. Chances are you'll be staggered at the cost!

Mis-selling and extremely high interest rates are the cause of the poor publicity - PPI's have been sold indiscriminately, even to those who cannot benefit fully from the cover they offer. As an example, it is no benefit whatsoever offering cover for redundancy to some-one who is self-employed or engaged in short term freelance work.

Despite all this, PPI can be a valuable tool in its place. If you would be in serious financial trouble making loan repayments were the worst to happen, then it could save a lot of worry by having some sort of insurance in place, at the right price. For instance, there's something new down at the Post Office. Following the bad press, the Post Office has obviously seen an opening for PPI and has entered the market, with a promise to offer a fair and reasonable deal.

As far as interest rates are concerned, it's possible for your loan to snowball when PPI is added. A loan of £10,000 over a period of five years can add up to a massive £16,114.40 if PPI is included. Without PPI the total would have been £11,650. Typically the APR is increased from 6.2% to 22.7%.

The Post Office Lifestyle protection policy has deeply undercut rival PPI products when it comes to cost, typically by up to 15%. This makes it a reasonable stand-alone policy. Customers can take out insurance on monthly repayments of anything from £100 to £2,500, right up to a maximum of 60% of their gross salary per month.

The Post Office is not the only place to buy a stand-alone policy, however. By logging on to an independent broker, you can find all types of insurance products, including PPI. The broker will search a whole range of insurers to find the right policy for you, to suit your own individual circumstances.