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Insurance Alternatives To PPI

by Jim ONeil on May 5, 2011

in ppi payment protection insurance

Legal requirements have forced British banks to reopen thousands of claims regarding missold payment protection insurance (PPI). These banks could be forced to pay £4.5 billion worth of compensation. The Financial Services Authority determined that PPI was unsuitable for many customers so these individuals should be aware of cost-effective alternatives.

In itself, PPI insurance is fine. The issues surround who it is sold to and at what costs. It is often sold with credit cards and loans because it is designed to help individuals make repayments of those during sickness, unemployment, or in the case of an accident.

Simon Webster with IFA Facts & Figures stated that the issues with PPI pertain to the way the insurance was sold.

Some insurance companies added PPI premiums for a full loan term into the capital portion of the loan, profiting nicely when a consumer paid off a loan early. Some people committed to purchasing PPI without their knowledge, while others did not realize that a stand-alone policy could be cheaper.

Now, a borrower must be told that PPI is not a loan prerequisite but an optional component.

The PPI situation has placed a bad taste in many consumer mouths, so they seek alternatives. Permanent health insurance or income protection insurance pays out about 50 to 60 percent of the income of a person who cannot work.

The premium accounts for occupational risks and pre-existing health conditions but it will not automatically cover a redundancy situation.

With income protection insurance, the policyholder determines the length of the waiting period for coverage. The benefits are received until the person retires or returns to work, differing from the limited payment period for PPI. Under income protection, even if a person makes a claim and then returns to work, the policy remains in place and can be used again in the future.

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