Payment Protection Insurance: Important Facts and Info

What is payment protection insurance (PPI)?

As the name suggests, PPI is a special type of insurance that helps you cover your loan repayments when you faced factors such as illness, unemployment or death among other factors that make it impossible to meet your loan repayment obligations. Payment protection insurance can cover your credit card payments, payday loan payments mortgage payments, catalogue payments among many other credit obligations you may have resulting from factors beyond your control.
Is payment protection insurance mandatory in the UK?

PPI isn’t mandatory in the UK. Lenders are however required by law to offer this type of insurance to borrowers who apply for loans. Under the Central Bank of Ireland Consumer Protection Code, for instance, lenders must quote for payment protection insurance separately and provide separate application forms when offering loans.

Do you need payment protection insurance?

Considering the insurance helps you meet your credit obligations when you face life’s uncertainties that are beyond your control, it is definitely important to have this type of insurance. PPI insurance is also important given the effects of missing payments on your overall credit score/report. It is, however, worth noting you may not need payment protection insurance in the UK if you have; a secure job with very little to no risk of redundancy. Also, you may not need PPI if you have a regular income, a similar insurance i.e. income protection insurance.


PPI covers all monthly repayments or a fraction of the repayments for a certain period. For credit cards, PPI usually covers the lowest/minimum repayment amount which is usually 2 to 5% of what you owe. Most PPI policies cover repayments for a few weeks to months so it is important to have an emergency fund on top of the insurance coverage. Nevertheless, different PPI policies have different terms so it’s important to choose a policy that matches your needs perfectly.


Like any other insurance cover, there is a certain eligibility criteria you have to meet to qualify for PPI insurance in the UK. For instance, most insurers offer PPI to individuals aged between 18 and 65 years old. You also need to work more than 16 hours every week to qualify for PPI.


You can’t make a claim successfully if you have prior knowledge you will/may become unemployed in the future or if you are self-employed and you go out of business. Individuals who have existing medical conditions which aren’t disclosed at the time of taking a PPI policy may also fail the eligibility criteria for claiming. There are many other exclusions that may be considered in PPI policies. It’s, therefore, important to research before taking a PPI policy.

Taking PPI insurance: Important factors to consider

Before taking out PPI insurance, there are a number of factors you need to consider. First and foremost, you need to consider if you really need the cover. You should also consider the total cost, if you have other related covers, the effectiveness of the policy i.e. what it covers in case of eventualities as well as the alternatives available. For instance, it may be better to take out an income protection policy, serious illness cover or personal accident insurance depending on the risks you are exposed to. Below is a brief discussion of some of the most important considerations to make.

a. Cost: Although the monthly premiums may seem low, they can easily add up to a lot of money if you pay for the entire term of the loan. For instance, the total amount of premiums paid can easily amount to 20% of the total amount borrowed for a loan exceeding 5 years. It’s, therefore, important to calculate the actual cost of the insurance to be able to decide whether the insurance is viable or not given the possible risk/s.

b. What is covered/what is excluded: It’s also important to find out what your policy covers and excludes. This is a very important factor to consider since different PPI policies may cover and exclude different things. To avoid surprises, you must take time and understand what is covered as well as what is excluded.

c. Receivable benefits: Most PPI policies cover repayments for a certain period usually one year. It is, therefore, important to understand the benefits you will receive before you take a PPI policy in the event of a claim.

d. Premium payment terms: You also need to find out how you will be paying the premiums. There are two alternatives when it comes to paying premiums for PPI policies. One, the premiums can be added up to the total cost of the loan. The premiums can also be calculated as a separate cost. It is better to take the second option since adding up the premiums to the total cost of the loan exposes you to unnecessary interest charges.


The importance of taking payment protection insurance can’t be overlooked given the impact of missing loan repayments or defaulting. Payment protection insurance also protects you from life’s uncertainties i.e. unemployment, injury, disability, etc. that can easily compromise your ability to meet your debt obligations. To protect yourself from life’s uncertainties that can easily make you default on your loan/s, it’s advisable to take payment protection insurance. You, however, need to consider the factors discussed above to ensure you get a PPI policy that serves your needs perfectly.

Is the Company Director of Swift Money Limited.
He oversees all day to day operations of the company and actively participates in providing information regarding the payday/short term loan industry.

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