Accident Sickness And Unemployment Insurance

What is Accident Sickness and Unemployment Insurance?

Accident Sickness and Unemployment cover (more commonly referred to as PPI is an optional ‘add-on’, which has been known to add as much as 15-25% to monthly repayments.

The benefit of taking up Accident Sickness and Unemployment insurance is that if any of the events stated in the name happen during the course of the insurance, (such as an accident or illness that prevents you from earning enough to make repayments, or if you are made redundant), then the insurer will pay some of your loan repayments. Most plans or policies do not provide cover on death of the policyholder.

Many policyholders who try to claim often find their claims rejected, or find that the cover provided is much less than they thought.

What people don't often miss

Sometimes, accident sickness and unemployment cover does not kick in until after a set period – usually either one month or three months – and this is known as a Wait Period. This means that for many, by the time the insurer pays out, your mortgage or loan is already in arrears.

The cover is often short term – it can only last for 12 months in most instances.

Many accident sickness and unemployment insurers do not cover self-employed people.

By law, the chances of you obtaining a loan or a mortgage do not increase by taking out accident sickness and unemployment insurance.

Before you think about taking out accident sickness and employment insurance, you should ask the lender to show you the cost of credit with and without the insurance so you can decide for yourself it it is worth the addition cost.

The commission rates on accident sickness and unemployment insurance that are paid to lenders are very high – sometimes as much as 50% of the premiums. Some lenders make more from their commissions on this insurance than they do from the interest margin. This in part explains how mis-selling PPI became so widespread for so long.

There are often several exclusions in the policy itself which will stop an insurer from paying out. It is vital that if you take out this cover, you make sure you are happy with the wording.

Wider criticisms

In December 2000 the Citizens Advice Bureau criticised Accident Sickness and Unemployment insurance in a report entitled ‘Daylight Robbery’. The CAB subsequently lodged a super-complaint to the Office of Fair Trading which labelled its response with the title ‘Protection Racket’.

The Competition Commission instigated an investigation and banned lenders from selling the insurance for a period.

The Consumers’ Association, publishers of Which? magazine, has also criticised the mis-selling and cover provided by accident sickness and unemployment insurance.

According to the Financial Services Authority, this is the most complained about product of all.

Alternatives

Income Protection Cover is not loan specific and can be more flexible, but most of the above issues also arise.

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