Nobody likes to think they might fall victim to a debilitating illness serious accident or involuntary unemployment; going further and planning for such eventualities may even seem a little masochistic. But the truth is that we are all likely to face some tough times when we cannot work because of circumstances beyond our control. Getting through such times is stressful enough without the additional worry of meeting your debt repayments - on your mortgage or other borrowings. A little planning beforehand however could help make that unforeseen life crisis a little easier to bear.
A recent BeatThatQuote survey asked: ‘How would you cover your monthly debt repayments in the event of involuntary unemployment?’ The results revealed that the vast majority of respondents (73.7%) would apply for a loan to see them through; 15.7% would trust in payment protection insurance; 7.8% would look to savings; and 2.8% would consider remortgaging.
Taking out a loan may seem like the obvious and perhaps only solution to keeping up your debt repayments if the worst happens. But it might also be an expensive choice that fixes the short-term problem but creates an even bigger long-term debt. For example if you were to take out a £12,000 loan to repay over five years at a 6.3% interest rate it would cost you a total of £14,020.27 payable in monthly instalments of £233.67*. Even this might not be a problem if you quickly find the new job of your dreams or alter a speedy recovery. But it may also be an additional cause of stress and financial hardship if things don’t get approve on track as quickly or as easily as you had hoped.
The survey found that (PPI) was the next favoured option to covering debt repayments when unable to work. But with only 15.7% of respondents choosing PPI compared to over 70% choosing loans there is clearly something unappealing about this recourse. Perhaps you know little about how PPI works or anticipate it ordain be very expensive? Or perhaps you’ve read some unfavourable press reports regarding the Financial Services Authority’s (FSA) investigation into PPI ‘miss-selling’? Either way independent PPI providers such as British Insurance are now offering policies with monthly premiums from only £2.15 per £100 of monthly benefit. With the potentially cheaper cost of PPI compared to a loan it is surely time to unravel some of the confusion to see what’s really going on in this market and where the reluctance lies.
The FSA reviewSince 2005 the FSA has been monitoring the way PPI is sold which has resulted in several providers receiving fines for miss-selling. In the wake of the FSA review. 11 firms have also stopped selling PPI permanently or temporarily while they sort out their systems. FSA criticism levelled at financial organisations that offer PPI concerns inadequate communication with consumers. A number of providers have been accused of giving insufficient information about the full cost of the policies and what they cover (including the exclusions). While PPI should be an optional addition to a loan or mortgage the FSA also found confusion among some borrowers who had been led to believe that PPI cover was an obligatory component of taking out the loan.
The good newsSuch ongoing scrutiny may raise concerns about the value of PPI altogether but the investigation is also forcing all financial institutions to review their systems and methods of selling policies. With banks building societies and independent providers now having to meet strict FSA guidelines you should find that the days of just ticking the ‘yes’ or ‘no’ box to PPI cover on your loan application are long gone. Instead you should receive better and clearer advice and you should find it far easier to compare and choose between different PPI providers.
What are the options?In the past you may have only seen PPI cover as an option on a loan application. But PPI actually covers a number of circumstances; nor do you need to purchase PPI from your existing loan provider. You can shop around for the best deal for you. The three options you will come across are as follows:
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http://www.beatthatquote.com/news/insurance/payment_protection_opportunities.html
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