Payment protection insurance, (also known as PPI, credit protection insurance, loan repayment insurance, not to be confused with income protection or credit card cover) is an insurance product that is often designed to cover a debt that is currently outstanding (only income payment protection, or the Competition Commission preferred term "short term IP" is not specific to a debt but covers any income). This debt is typically in the form of a loan or an overdraft, and is most widely sold by banks and other credit providers as an add-on to the loan or overdraft product. It typically covers the borrower against an accident, sickness, unemployment or death, circumstances that may prevent them from earning a salary/wage by which they can service the debt.
PPI usually covers minimum loan (or overdraft) payments for a finite period (typically 12 months). After this point the borrower must find other means to repay the debt, though the period covered by insurance is typically long enough for most people to start working again and earn enough to service their debt. PPI is different from other types of insurance such as home insurance, in that it can be quite difficult to determine if it is right for a person or not. Careful assessment of what would happen if a person became unemployed would need to be considered, as payments in lieu of notice (for example) may render a claim ineligible despite the insured person being genuinely unemployed. In this case, the approach taken by PPI insurers is consistent with that taken by the Benefits Agency in respect of unemployment benefits.
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