Introduction

As your home is put up as security against a secured loan it is nearly always sensible to take out insurance against the payments. All secured loan providers offer Payment Protection Insurance (PPI) and, as the market grows, there are a growing number of specialists insurance providers. This article discusses some of the things to be cautious of when taking out PPI, regardless of which type of provider you use, for a secured loan.

PPI - Always look under the bonnet!

The Financial Services Authority (FSA), who in January 2005 took insurance under their regulation, demands that all insurance providers provide a 'Policy Summary' of the insurance they are providing. This outlines, amongst other things, the main features, costs and benefits of the policy as well as significant or non-standard claim exemptions and how long the cover will last for. In the search for getting to grip with the insurance cover for a secured loan the 'Policy Summary' is normally the best starting point.

The 'Policy Summary' will start by telling you the significant benefits of the cover. It will tell you what you are covered for (for example, serious accident, death, sickness and redundancy). It will also tell you how they calculate the daily rate of cover, the maximum length of time the insurance will pay the secured loan payments, the maximum benefit per month, age constraints and what will happen if you pass away.

The 'Policy Summary' will then tell you about the significant exclusions or limitations of the cover and this is perhaps one of the most important areas to look at when considering taking out PPI for a secured loan. This section will normally tell you which sicknesses are not covered. For example, if you knew about a specific condition within 12 months prior to taking out the loan, you won't be covered for that specific condition. Some insurance policies stipulate they do not cover for backache unless medical evidence via an X-Ray can actually show some sort of defect. It is important to also bear in mind that certain policies will not cover you for stress, stress related illnesses or most mental health problems. Most, if not all, policies also do not cover you if you take voluntary redundancy and will also not cover you if you are forced to take involuntary redundancy within a certain time frame (e.g 60 days) of taking the policy out. You will also find that certain policies will not cover you for the duration any payments are made in place of notice (these are typically called `payments in lieu of notice').

Perhaps the most important things to consider when taking out insurance protection for a secured loan are the things you know about prior to taking out the policy. For example, have you a record of sickness or are there any `rumblings' at work about redundancies? You must be cautious about this and if you are unsure about anything then either read the policy document prior to signing up or ask the insurance provider if they envisage any problems. It is also prudent to get any 'advice' about such matters down in black and white.

It is very worthwhile going through with a fine toothcomb the actual policy document itself. You may find other causes for concern, for example some policies use the fact that you are claiming Jobseekers allowance to govern whether you are employed are not. There are cases when you might not qualify for jobseekers allowance (for example, if you have over a set amount in the bank or have been paid in lieu of notice). This outcome may be that even though you are indeed unemployed the policy will not make the payments against the secured loan.

It is worthwhile making sure you know how long the insurance policy will keep up the payments. For example, most policies only cover you for one or two years. After this period you will have to make the secured loan repayments yourself (although you may find, as with most policies, you may be able to claim again on the policy after a set period).

A significant thing is to make sure you know the termination policy of the insurance provider. You will typically find that the PPI provider for a secured loan must give you a month in which to change your mind about the policy. This is sometimes referred to in documents, on the Internet and in the Press as a 'cooling off' period. Remember if you cancel after this time the refund will probably not be in direct proportion to the remaining policy term. So you could get back less than you might expect, or even nothing. This mainly happens because of the way secured loan providers set up the PPI. They will typically assign the policy cost as a percentage of the basic loan and add this to the initial loan amount. This means you are also paying interest throughout the term of the loan on the amount charged for insurance.

If you ever have cause for complaint about the PPI you have been sold for a secured loan, you should first complain directly to the firm who sold you the policy and give them chance to put things right. If you're still not happy with the outcome than you can escalate your complaint to the Finance Ombudsman Service. For advice about this it might be worthwhile paying a visit to their website prior to taking out the loan and insurance.

Summary

Like all insurance, PPI policies for secured loans generally include a number of exclusions or conditions that will prevent you from claiming on a policy. Whilst it is acceptable that the insurance provider protects themselves from fraudulent or deceitful claims, it is imperative you learn what you are and what you are not covered for. There is absolutely no point paying expensive insurance premiums for a worthless policy - and you would be amazed at how many people do!

When taking out any monetary commitment, particularly if it is secured against your hose, it is always worthwhile seeking independent financial advice. Most registered I.F.A.s will normally give you a 30-minute consultation at no cost and there are also downloadable vouchers on the I.F.A.s various websites. Also, never be unwilling to ask the vendor about any details in the secured loan protection policy you're unsure about. If the salesperson cannot answer your query then don't hesitate to ask them to escalate the question to a Supervisor or Manager. As with anything in life, it is also worth asking someone with experience, so if you are taking out insurance for a secured loan, always ask around colleagues, friends and family to see if anyone has had experience of making a claim against one. But the bottom line is, always be careful where money is involved!