A number of our readers have asked me what is the difference between income protection and PPI, so I have compared the two quite different policies to clarify the situation.
What is income protection insurance?
Income protection insurance is designed to replace a percentage of your income if you are unable to work due to illness or injury. The policy will pay out a monthly amount which can be used for any purpose but typically is used to cover mortgage payments and household bills. Income protection insurance can be either a short term or long term policy with premiums paid monthly.
When does income protection insurance pay out?
An income protection insurance will pay out an income directly to the policy holder after you have been off work for a period of time agreed at the commencement of the policy, this would typically be between 7 days and 12 months. The shorter the period the higher the premium paid.
What is income protection insurance used for?
Income protection insurance is designed to provide the policyholder with an income when off work due to accident or illness. This income would typically be around 70% of gross income and should be enough to cover mortgage payments and basic bills.
What is PPI?
PPI will cover monthly payments on a loan or credit card if the policyholder is off work due to illness or accident or made redundant and is typically taken out at the same time as a loan. This type of insurance may also be known as ASU (accident sickness and unemployment) or MPP (mortgage payment protection).
When does PPI pay out?
PPI will typically payout 30 days after the policyholder stops working and payments will usually continue for 12-24 months. Any payments made under a PPI are made directly to the loan company not to the policyholder
What is PPI used for?
PPI is used to cover a loan or credit card payment and therefore it is possible for an individual to have more than one policy to cover different loans. Any payments made will be a set period of time which is set at the outset of the policy.
Looking for a financial adviser near you?
Do you need financial advice? An independent financial adviser can show you how to make the most
of your money. Find your nearest qualified and regulated adviser using this VouchedFor search tool.
Alternatively, Hargreaves Lansdown, one of the UK’s largest firms providing restricted financial advice, is offering a £200 John Lewis voucher* to new clients.