What Is Payment Protection Insurance?

Payment protection insurance, also referred to as PPI, is offered by creditors as a way to protect customers in the case they are unable to make payments toward their debt. Though you will need to meet certain criteria in order to be eligible to receive benefits on this type of plan, you can access a payment protection insurance policy through banks, lenders and credit card providers.

Features

Payment protection insurance can be used for loans, lines of credits and mortgages. You will often be offered the option to take out a PPI policy when you sign up for a new loan or line of credit. You will be quoted a rate that you will need to pay each month in order to keep the coverage active. You may have the option of rolling the insurance into the monthly payments you make to pay off the debt.

Significance

In order to access the benefits for a PPI policy, you will need to meet the criteria dictated in your contract. PPI plans typically pay out if a person loses his job, becomes disabled or dies, as long as the policy remains active.

Cost

The cost of the payment protection insurance is typically calculated using the amount that you owe to a creditor. Many insurers will charge a percentage of the amount owed on the loan. If it is a revolving account, like a credit card, your premium may be raised if you charge more money on the account.

Types

The type of benefit you will access depends on the type of PPI plan that you choose. Some plans will make your loan payments for you while you are eligible to receive benefits. Other plans simply defer your payments without accumulating interest during this time frame. Another policy option allows for your loan to be paid off in the event of your death.

Time Frame

There will be a certain time frame that you will be excused from making payments on the money that you owe creditors when you are covered under a payment protection insurance plan. Many policies allow you to postpone payments on the loan for up to 12 months. The time frame permitted will be dictated in the contract you sign when agreeing to the policy.