Payment protection insurance (PPI) covers your monthly bills towards mortgages, loans or credit cards in the event that you can’t work for a period of time due to death, illness or disability through no fault of your own. That being said, it’s wise to ask yourself some important questions if you are considering the purchase of payment protection insurance.

  1. What is the total cost of the insurance?

It’s fairly common that you will get your PPI quote in terms of a monthly price. On the surface, the monthly price can seem reasonable and not very scary at all. Over the long term, these monthly payments can really cost you a lot of money if you’re not careful. For example, a monthly premium of €50 looks very manageable but when you factor in the annual cost of €600, the numbers start to become clearer. Over the course of a five year policy, you would have to pay €3,000! This may not make sense depending on the coverage you’re receiving.

  1. What benefit will I receive?

Ask the insurance company how the policy works in the event that you will need it in the future. Many policies only cover the minimum credit card payments. This may not be very helpful to you if you can’t work and your insurance only covers the minimum payment while interest continues to build on the larger credit card balance. There are also time limitations on the coverage and several PPI policies will only cover you for one year. If you’re worried about a longer gap in work due to injury, you may want to look for another policy provider.

  1. Do I have to pay the insurance up-front?

Some lenders add the full cost of PPI into the initial loan. You will also then have to pay interest on the insurance coverage premiums that are included in your base loan. This will cost you more money over the long term, so it’s important to understand how your insurance premiums will be billed.

  1. What is covered and what is excluded?

There can be exclusions for certain types of illnesses and injuries, so it’s wise to ask your insurance provider about the details of what’s covered under the plan(s) you’re shopping.

  1. Can my premium increase?

Yes, your premium can increase every year that you renew your policy because of claims that you have taken against the policy in prior years, the insurance company’s assessment of risk conditions or the insurance company changing its risk premium model across the board. Check with your provider to understand how, when and if your annual premiums might increase.

Even after asking yourself and the insurance provider the questions above, you still need to decide if you actually need the coverage at all. Do you have additional coverage through your employer or another insurance policy that you own which will cover you in the event of death, illness or disability? If the answer is yes, PPI may not be a good solution for you. If you have already purchased PPI insurance, there are companies that can help you fix your PPI policy. You can find one local to you through a simple internet search. Lastly, make sure to get answers to all five of these questions and do your homework on the insurance company that will provide you the policy. This will ultimately lead to a stronger relationship for both parties.