The employment market is grim and many people might be faced with the reality of redundancy and how to pay for credit, loans and mortgages. Around 13 million people have Payment Protection Insurance (PPI) in place to help with monthly outgoings if they are not able to work which sounds very sensible in the present situation, but at what cost? The majority of policies only cover the minimum credit card payment and this is likely to be only for 12 months.
Insurers and banks are guilty of hard-sell tactics on customers for PPI because they realise substantial profits from this source. They also deny the customer relevant information regarding more appropriate, and definitely lower cost, cover. The Competition Commission has finally taken action having been badgered for years by consumer groups. They are hoping to ban sales of PPI at the time of agreeing a credit or loan deal but letting them contact them in 14 days time. They are also stipulating that the sales teams should inform customers that PPI is optional and does not have to be bought through them and that they can source it independently from other providers of the product.
With this comes a warning from PPI firms saying that consumers are in danger of ending up unprotected. Director of general insurance and health at the Association of British Insurers spoke out, "This is devastating news. By effectively denying consumers PPI in the very economic climate that they need it most, the Competition Commission has got this completely wrong." He added that claims have increased by nearly 70 per cent for unemployment on PPI's.
Borrowers could see interest rates increase because of this. A spokes person from the advice website Moneynet says, "Lenders may have been subsidising their lending rates with the vast profits generated by PPI. Banks are not going to take this lying down. We could begin to see interest rates increase significantly."
However, PPI is not the only alternative. There is also Accident, Sickness and Unemployment cover (ASU) which you can buy independently of any loan and costs approximately 5 pounds per month per 100 pounds of income in ASU premiums - these generally pay out for 12 months. At present you are not risk-assessed on your personal situation but the word is this could change as some providers of ASU cover are retracting their products and introducing assessment for risk and new pricings.
There is another answer according to financial advisor James Henry, a protection specialist from CBK "The most obvious is income protection insurance, which can be tailored to the length of cover and level of benefit required," But many financial advisers urge consumers to look at another solution. "The most obvious is income protection insurance, which can be tailored to the length of cover and level of benefit. It can also include an extended deferred period to avoid overlapping with other benefits. This in turn reduces the premium."
High street brokers and specialist providers offer income protection and you can buy it independently of any loan. It provides cover for a percentage of your income rather than a specific loan payment, unlike PPI. It will pay out until you are 65 if you are not able to return to work. The premium is assessed on your likelihood to make a claim. Shop around on the price-comparison websites and look for offers on income protection policies but the cheapest is not necessarily the best - make sure the policy you choose is relevant to your personal requirements.
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