What is PPI?
What is PPI?
PPI (payment protection insurance) – also known as credit card insurance, credit protection insurance or loan repayment insurance – is an insurance product taken out at the time of opening a credit card or loan. PPI was widely sold by banks as an add on to credit cards or loans.
The purpose of PPI is to protect the borrower if they are unable to pay back their loan repayments and to keep themselves covered in case they are unable to pay off a loan. A PPI policy would generally cover a borrower if they are unable to repay their loan payments due to any of the following reasons:
- Being incapacitated because of an accident
- Wrongful termination
Under the terms of a PPI policy the insurance company will continue to pay a borrower’s repayments or a percentage of it for a fixed period of time. PPI usually covers a defined time period (typically 12 months), after this point the borrower will need to find other means to repay their debt.
However, a significant number of policyholders have found that the insurance is worthless to them because if they needed to make a claim they wouldn’t be entitled to help. For example, if they are self-employed or retired.
PPI is rarely sought out by customers and, in many cases, they don’t even know they have it. PPI was often perceived to be a prerequisite of being granted the loan or credit card.