The Payment Protection Insurance is often included in the loan so that the borrower will have cover for those unexpected situations in which the borrower is not able to meet his monthly loan payments.

Many lending companies include the Payment Protection Insurance (PPI) as an integral part of all the loans that they grant. But this PPI is actually optional. That is, the borrower is not obligated to have the PPI added to his loan. And the borrower may avail of similar services that are alternatives to the PPI. But before the Payment Protection Insurance is thrown out of the window, an individual should have a clear idea about what this insurance is all about.

The Nature of Payment Protection Insurance

The Payment Protection Insurance is a cover for the borrower so that he can maintain his monthly loan payments even when he is unable to do so. This happens when the borrower gets sick, meets an accident, gets fired, or embroiled in a situation that demands spending a large amount of money.

There are many ways of determining the PPI as there are many lending companies. But generally, the PPI is mainly influenced by three factors. These are the amount of money that the loan applicant intends to borrow, the type of loan application which can be single or joint, and the terms for repaying the loan.

Disadvantages of the Payment Protection Insurance

Despite the noble intentions of the PPI, its actual use has led to several disadvantages. The first disadvantage cited by many borrowers is that the PPI can nearly double the cost of the loan and, when the Payment Protection Insurance is automatically added to the loan, it is included in the computation of the monthly interest.

The second disadvantage is that not all borrowers are entitled to this Payment Protection Insurance. Since many PPI polices cover redundancy only, the borrowers who are self-employed cannot use it. Thirdly, even with PPI, the borrower may still not have its cover if his loan has not reached six months. In other words, the PPI is expensive and restrictive. and, this is why, alternatives to the Payment Protection Insurance are sought.

Alternatives to Payment Protection Insurance

If the borrower really wanted to have protection for his loan payments, but not willing to shoulder the expensive PPI, he may approach the British Insurance Brokers Association or BIBA. This organization has a complete and updated list of brokers and insurers that offer terms that are similar to PPI, but the fees are lower and the conditions are less restrictive.

Two other alternatives to PPI are the