Insurance is commonly taken out to protect you against unforeseen circumstances. In a world of borrowing and debt, these circumstances are increasingly to do with debt repayment. PPI is sold with financial products such as credit cards, mortgages and loans, and ensures that the minimum monthly repayment is always covered in the event of your being made redundant, becoming ill or having an accident – basically anything which might affect your ability to earn money and make repayments as usual.

It can be very useful, although not by any means always necessary. Before taking out PPI you should check with your employer what your sick pay entitlement is – it may be enough to negate the need for insurance. Similarly, a redundancy package may give you enough funds to cover your financial commitments until another job comes along. Either way it’s a good idea to read up on PPI options when investigating any financial product, providers will make PPI details clear on their website (see the Santander personal loans page for an example).

Unlike car insurance, loan insurance is not a legal requirement, and lenders cannot refuse you a loan just because you failed to take out PPI. The same goes for credit cards (although they will certainly try to sell you a PPI product when you apply). Mortgage lenders will demand that you have life insurance or some other guarantee of continued ability to pay before they agree to lending you the money.

Often, the answer is income protection insurance, which pays a percentage of your salary if you find yourself unable to work for a while. A typical IPI or PPI policy will not start to pay out until a month after your income stops, and will run for a set period – usually up to 18 months or two years. Most policies will not cover common conditions like stress and minor back problems. You are also unlikely to receive a payout if you are unable to work owing to a previous condition. It has to be something new, unexpected, and worthy of a long lay off from work.

Most policies are paid into monthly. You can cancel at any time, and should incur no extra cost for doing so – check with the provider that this will be the case. Even if you paid for a year’s worth of insurance ahead of schedule, you are entitled to a refund if you cancel before the end of the term.

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