Payment Protection Insurance

This recession has made us all increasingly risk averse; loss of income through redundancy or sickness is now an all too real threat. In exchange for a modest premium, payment protection insurance makes it one less thing to worry about. But note if you are already under threat of redundancy a new plan may not cover you. So always take independent financial advice.

Payment protection insurance/ mortgage payment protection insurance will provide a monthly amount to cover mortgage or other loan repayments in the event of accident, sickness or unemployment (ASU). It is available at a cost of around £2.77 per month for ASU or unemployment only at around £2.18. per £100 per monmnth of cover.

To cover a mortgage repayment of £500 per month would cost 5 x 2.77 = £13.85 per month. Unlike its now discredited single premium equivalent monthly plans can be stopped at any time without penalty.In these uncertain times ASU now looks like very good value and we would encourage anyone with a loan outstanding to consider it.

Typically you have to be sick or unemployed for at least one month before you receive payment which usually will last for no more than one year for unemployment or up to 2 for sickness. You’re eligible if you: are in permanent full-time continuous employment or self-employment (minimum 16 hours per week) have been in employment for at least six months, are aged 18 - 60 years (in many cases, cover can be continued to the age of 65) are working in an acceptable occupation, are living in the mortgaged house, and living and working in the UK, Channel Islands or Isle of Man, are not aware of impending unemployment, have been in good health for at least 12 months or 6 months (depending which policy you choose) prior to the start of the policy.

Be aware unemployment cover will not pay out for self employed people unless you can prove insolvency and will not pay out for employees on taking voluntary redundancy or resignation.

Background Info

If you fall ill many employers will only pay you a full salary for a short time, and some only pay the statutory amount (around £68 for up to 28 weeks). State Incapacity Benefit (paid if you can’t get statutory sick pay, or yours has ended) can be less or not much more (around £58 to £77). The average length of accident/sickness claims, and unemployment claims, is more than six months. (Source: CML website May 2005, for the year 2004)

If you become unemployed Job seekers' allowance is only around £34-£56, and you may not be eligible if you have some savings. The state will may well not help you, but insurance probably will.

So talk to Facts & Figures: chartered financial planners today Contact Us