Income and payment protection

Find out about income and payment protection, and how to check if one of these products is right for you.

We are aware that some firms have developed new products that aim to provide similar kinds of cover to payment protection insurance (PPI).

While these new products may be useful for some people they can come with similar risks to PPI.

We have told firms developing and selling new income and payment protection products to think carefully about how they meet the needs of customers. But there are steps you can take to protect yourself from being mis-sold or buying a product that is not right for you.

Complain about PPI: find out how to claim back money you’ve paid for PPI.

Income and payment protection: things to consider

You may be offered an income or payment protection product if you are taking out a loan, mortgage, credit card, store card, car finance or other credit.

There are several types of income and payment protection and it can be held with or separately to the credit product.

However, the different types of protection do not necessarily offer the same cover. So if you are thinking about taking out an income or payment protection product, you should carefully consider whether it is right for you.

Also, while you may be offered one form of protection you should shop around, as another product might be better for your circumstances. For example, a lender may offer you a debt waiver that could be useful to cover loan repayments, but it might be better for you to have a short-term income protection product (STIP) so you could choose how to use money you are paid.

Types of income protection products

Payment protection insurance (PPI)

While PPI was found to have been widely mis-sold, it can be useful in the right circumstances.

PPI may cover your loan, mortgage, credit card or other credit repayments for a set period of time if you are unable to meet them in certain situations. These circumstances usually include being made redundant or not being able to work because of an accident or illness.

PPI can no longer be sold at the same time as a loan or credit, although the firm can provide a quote for the cover. It then has to wait at least seven days before it can complete the PPI sale, unless you contact the firm yourself to buy it sooner.

You can find out more about PPI and how it works.

Short-term income protection (STIP)

If you are unable to work due to an accident, sickness or involuntary unemployment, STIP can provide regular, pre-agreed and tax-free money for a set period of time.

The amount paid out under a STIP policy is an agreed percentage of your monthly income, up to a maximum amount (typically between £1,500 and £2,500 a month).

If you have to claim on your STIP policy the insurer will pay the money directly to you and you can decide how to use it. This might be to cover outgoings like loan or mortgage repayments, utility costs and food bills.

STIP does not need to be bought with a specific loan and you decide how much you want the policy to pay you, and therefore how much it will cost.

STIP cannot be sold at the same time as a loan and a firm has to wait at least seven days from agreeing the loan before it can complete the STIP sale. However, you can contact the firm yourself within this period to buy STIP sooner.

Debt waivers

If a debt waiver is included in the terms of your loan or other credit product, such as a credit card, the lender will agree to waive their right to take monthly repayments from you for a set period of time in certain circumstances, such as accident, sickness and unemployment.

A debt waiver is considered part of the loan or credit product, and is therefore sold at the same time. You should check how you will pay for a debt waiver and the overall cost, as having it might mean making higher interest payments on your loan or credit product.

This protection is sometimes called debt cancellation. However, you should look carefully at the terms of the cover as it may only waive interest repayments, not the entire loan.