Payment Protection Insurance (PPI) is an insurance to cover your loan, credit or store card repayments should you ever have an accident, become ill or become unemployed. The insurance will cover your payments while you are unable to... Or so it's supposed to! Payment Protection is definitely not a bad idea; it is there to protect you should you be in unfortunate circumstances where you cannot continue your repayments. However, many payment protection plans have hidden terms and conditions which mean you won't always receive what you'd expect…

Payment Protection Insurance policies are often mis-sold and over-priced so it's important to know the signs of a 'dodgy' insurance policy. If you are told you have to purchase PPI in order to receive your loan, this is mis-selling - you should never be forced into buying PPI, it is NEVER mandatory. Employers are often forced to sell PPI to customers or risk a cut in their wage; mis-sold PPI can generate a hefty profit for banks.

Firstly, you need to decide whether you definitely need PPI - of course, it's always handy to have an insurance cover should unfortunate circumstances arise but if you are in a stable job and know you could easily pay off your debts then there's no point in wasting money every month on something you don't need. If you do decide to take out PPI then it's important to make sure you aren't paying too much for it, ask for all terms and conditions so you know you aren't going to be paying too much out.

So you've decided to purchase PPI just to keep your peace of mind? First things first, if you are thinking about purchasing PPI from your lender, why not have a look elsewhere for the insurance? Chances are standalone PPI will be a lot cheaper so look into a private company and slash the price of your insurance cover. Check how long your PPI policy lets you claim for - is iit for the full-run of your loan or does it allow just one year of help with repayments? A lot of companies are doing this so be sure to check how long your provider will keep up repayments for you; if you were to fall ill in the second year of a five year cover plan and your policy only covered one year, how would you repay three years you have left?

Most of the profit from selling loans and store cards comes from Payment Protection Insurance, which is why banks and other companies are so eager to sell it to you. There are over 20 million insurance cover policies in the UK, generating over £5 billion each year for the companies involved. Mis-sold PPI could be purchasing your insurance cover without even being told about it, being told it was compulsory in order to receive your loan/credit card or cover not being explained to you properly. Look out in terms and conditions how long the company will cover you for, there's no point in being covered for one year if your loan is a five year plan. Check the policy actually includes unemployment cover! Believe it or not, not all payment protection insurances will cover unemployment. Most companies will exclude existing medical conditions so be sure to check this in the terms and conditions if you already have an illness.