Better protection
There may be better options than PPI for making sure you’re protected when things go wrong.
There may be better options than PPI for making sure you’re protected when things go wrong.
It’s really important to have some insurance in place to protect you if you can’t work because of illness or accident. And you need to be able to cover all your main outgoings – not just one debt.
How would you manage financially if you were too ill to work?
Payment protection insurance (PPI) is better than no protection at all, but we think it offers a poor deal for many consumers. See ‘what’s wrong with PPI’. Much better protection is available, often without paying all that much more.
Which? can't offer you financial advice, but here are some things to bear in mind before you take out payment protection insurance.
Firstly, if you are employed, you should check what your employer would pay you and for how long, if you were unable to work through illness or accident or disability. After all, there is no point for paying for protection insurance if your employer is already providing this.
However, most employers will only pay you for a limited period. You need to consider what you would do if you were unable to return to work by the time your employer stops paying.
If you are self-employed you don’t have an employer to fall back on, so it’s even more important to make sure you have adequate protection in place.
Many people, whether employed or self-employed, are entitled to some help from the state if unable to work because of illness, accident or disability. These benefits are paid for through National Insurance Contributions.
Employees will usually be entitled to Statutory Sick Pay (SSP) for up to 28 weeks, paid by their employer. SSP is currently £72.55 a week. Many employers may top up SSP with additional sick pay, (see above) but this further payment is discretionary, and may be longer or shorter than 28 weeks (check your contract of employment for details).
After 28 weeks, employees may be entitled to receive short-term Incapacity Benefit, currently also £72.55 a week, and is paid from the 29th week of sickness to the 52nd week of sickness.
Self-employed people won't be entitled to Statutory Sick Pay, but may be able to claim Incapacity Benefit instead. For full details of state benefits go to the Department of Work and Pensions website at www.dwp.gov.uk.
A potentially much better alternative to PPI is a protection product called income protection. This pays out a portion of your income (50% is common) if you are unable to work because of illness, disability or accident. However, income protection doesn’t cover redundancy or unemployment.
Income protection is underwritten taking into account your particular circumstances, such as your age, gender, occupation, your health and whether you smoke or not.
For many people income protection will cost no more than PPI, but will provide much better benefits. You can decide when the cover starts – after four weeks, three months, six months or even a year – so you can fit the cover around the cover you have from your employment. The longer the period before the cover starts paying out, the cheaper the premium.
Income Protection also continues paying until either you reach the end of the term (people often run the term through to their retirement age), or until you return to work. If you claim on the policy and then go back to work, your policy continues on as before.
For some people, however, the cost of income protection may be too high. There is also the possibility that payment under an income protection policy might affect state benefits so you should always check this with your IP provider or adviser.
Income protection can be expensive if you are in a risky or stressful occupation, or if you have health problems or smoke. With most companies women tend to pay more than men.
However, it’s always worth getting a quotation for income protection first and then submitting an application to the most competitive providers. We suggest you take advice and get help shopping around the companies.
You should always consult an independent financial adviser (who can search the whole market for you), and try to get an adviser that specialises in protection products.
Many people are sold critical illness insurance, often in addition to PPI, but it's important to note that critical illness insurance is not an alternative to PPI or income protection.
Critical illness insurance pays out a lump sum if you suffer from a serious illness like cancer or a heart attack. It can be useful additional cover because you can use it to pay off your mortgage or other large debts should the worst happen.
However, it won't provide you with a regular income whilst you are unable to work, and it won't cover you for accidents or conditions like back pain or stress.
So, although critical illness can be useful additional protection for those who can afford it, it shouldn't be at the expense of a policy that gives you an income if you can't work, regardless of the illness or disability you might suffer.
If income protection doesn’t suit then you can consider mortgage payment protection to cover your mortgage payments, or a payment protection insurance that lets you choose the level of cover you need each month. But do shop around – don’t just take the product offered by your mortgage lender or loan provider.
At the moment it’s difficult to shop around yourself amongst providers of payment protection, but the regulator for financial services – the Financial Services Authority (FSA) will shortly be launching tables which will allow you to compare between policies. As soon as these are available we’ll bring you a link.
The Financial Services Authority’s website money made clear offers information on all types of protection products. Visit www.moneymadeclear.fsa.gov.uk.
Financial advisers Read the Which? report on choosing and making the most of an independent financial adviser.
protection insurance The Which? report on protection explains the different options.
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