For many of us, one of our biggest fears is not being able to pay our financial commitments – such as a home or car loan – should we find ourselves made redundant or unable to work through illness or accident.

While there are a number of ways in which you can protect yourself against loss of income, one form of cover is payment protection insurance (PPI). PPI, also known as Accident, Sickness and Unemployment (ASU) cover, is an insurance policy which insures borrowers against an accident, sickness or unemployment circumstances that may prevent them from earning a salary/wage by which they can service the debt. This means that the insurance company will pay the monthly repayments (or a percentage of them) on your behalf for a fixed period of time, usually 12 months, if you make a claim.

PPI is not the only product designed to protect against loss of income, and may not always be the most appropriate. Although PPI can provide worthwhile cover against unexpected changes in your personal circumstances, you should bear in mind its limitations and exclusions, and possible alternative products. You may not be required to purchase PPI cover before you take out a loan with a bank.

PPI cover will vary depending on the sort of repayments the policy is designed to protect, and on the terms of the particular policy. There might be some policies which will allow you to choose the cover you want – for example you can decide to take accident and sickness cover only and exclude unemployment cover. All policies are different, so always shop around and double check with the provider selling the product whether it includes the features you need. The following are typical loans which are normally covered by different types of PPI:

• Home loan – The insurance covers your monthly home loan repayments for a set period of time. The maximum number of monthly repayments that the insurance company will make is usually 12, but it can sometimes be extended to 24. After this period you will have to pay your monthly home loan repayments yourself.
• Personal loan – The insurance will cover your monthly repayments for the loan – generally for 12 or 24 months. After this period you will have to pay your monthly loan repayments yourself.
• Car loan – Your car loan monthly repayments will be covered by the insurance for a period which will generally equal to 12 months or 24 months. You will have to continue repaying the monthly instalments yourself once this period elapses.

Some PPI policies may also include a life cover benefit to be paid in the event of death.

To be eligible for cover under this policy at the time your cover commences you must:

• be aged 18 or over but under 65;
• be permanently resident and working in Malta. Some policies may also accept applications of persons permanently resident and working in any other Member State of the European Union;
• be in employment and actively at work (you cannot be on statutory leave, disabled or out of work for any other reason);
• have been employed continuously with the same employer for the past 6 months and working more than 16 hours a week and;
• have a home / house, personal or car loan.

You may not be covered if you are self-employed. You should check whether you are eligible to apply for such a policy.

Can the policy be taken in joint names?

Yes. Where two insured persons are named on the insurance certificate and one of you:

• Voluntarily stops being in employment;
• Ceases to have a loan;
• Retires from employment or;
• Reaches the age of 65 (or the statutory retirement age as established from time to time),

the insurance company should contact you and issue a new insurance schedule or certificate.

You should read the key policy information that comes with any PPI policy you take out. This sets out, amongst other things, the main features and benefits of the policy as well as any significant or unusual exclusions and for how long the cover will last. If unclear ask the intermediary (who could be a bank official) to go through it with you and make sure you’re happy before you take it out.

If you are covered under the PPI policy and your claim is accepted, the insurance company will pay a monthly benefit which will be equal to the monthly loan repayment. The monthly benefit is payable pro-rata each month and is calculated on a daily basis, with one day having a ratio of 1/30th of the monthly benefit.

The insurance company will normally cover for Accident and Sickness benefit:

If, after the start date, you suffer an accident or sickness, 1/30th of your percentage of the monthly benefit will become payable per day, following the excess period (normally 30 days), until:

• The accident or sickness ends, or
• You return to active employment, or
• The date on which your obligations under your loan agreement are terminated, or
• You reach the age of 65, or
• The insurance company has paid the maximum number of monthly benefit payments.

The insurance company will normally cover for Unemployment benefit:

If, after the start date, you become unemployed, 1/30th of your percentage of the monthly benefit will become payable per day, following the excess period (normally 30 days), until:

• You return to active employment, or
• The date on which your obligations under your loan agreement are terminated, or
• You reach the age of 65, or
• The insurance company has paid the maximum number of monthly benefit payments, or
• If you engage work on a temporary basis during a claim.

Typical examples:

1. Individual cover

Suppose that your monthly loan repayment is €300 and you submit a claim under the Accident, Sickness or Unemployment section. If the terms and conditions of the policy have been met and your claim is accepted, the insurance company will pay you, following the excess period, 1/30th of the monthly benefit. Given that the monthly benefit is equal to the monthly loan repayment, the insurance company will pay you €10 for each further day of your claim as per the terms and conditions of your policy.

2. Joint cover

Suppose that the joint monthly loan repayment is €1,000 and you both submit a claim under the Accident, Sickness or Unemployment section. If the terms and conditions of the policy have been met and your claim is accepted, the insurance company will pay you, following the excess period, 1/30th of the monthly benefit. Given that the monthly benefit is equal to the monthly loan repayment, the insurance company will pay you €33.33 for each further day of your claim as per the terms and conditions of your policy up to the maximum monthly benefit of €1,000.

3. Joint cover

Suppose that the joint monthly loan repayment is €1,000 and one of you submits a claim under the Accident, Sickness or Unemployment section. The amount of monthly benefit payable is calculated by dividing the gross salary of the person who is claiming by the combined gross salaries and then multiplied by the maximum monthly benefit payable under the policy. So if Insured Person 1 has a gross salary of €1,500 and Insured Person 2 has a gross salary of €2,500, Insured Person 1 earned 37.5% of the total salary and is therefore entitled to 37.5% of the monthly benefit (that is €375) and Insured Person 2 earned 62.5% of the total salary and is therefore entitled to 62.5% of the monthly benefit (that is €625) in the event of a claim.

The above are merely an example of how a typical PPI works. Each case will vary depending on one’s personal circumstances.

There are some important conditions you should be aware of before deciding to take out this cover. These will differ depending whether you will claim for accident and/or sickness or unemployment benefit.

The insurance company will not normally pay any unemployment benefit:

• If you’re a contract worker or self-employed (certain conditions for redundancy cover apply).
• Until your policy has been up and running for an initial period – typically 60 days.
• If at the time you took out the policy you knew of any impending problems within the company you work for which might result in you getting unemployed or redundant.
• If it is a normal seasonal occurrence or a normal incident in your occupation.
• After a period of apprenticeship or training or of casual, temporary or occasional work.
• If it arises after the termination of a fixed term contract.
• If it results from own misconduct, early retirement, voluntary redundancy or resignation, failure to pass probationary period or breaching of the terms and conditions of your employment contract.
• If you are not registered as unemployed with the Employment and Training Corporation and if you are not actively seeking employment.
• If it arises from an industrial action.
• If the unemployment period does not exceed the excess period.
• If you have negotiated a settlement to terminate your employment.
• Once you return to employment whether full or part time.
• Once you reach the age of 65 (or the statutory retirement age).
• Should the claimant work on a temporary basis during a claim, but payment shall be resumed once such temporary work ends, subject to terms and conditions.

The insurance company will in general not pay any accident and sickness benefit for:

• Existing injury, illness, defect, chronic condition, pre-existing condition.
• Elective surgery (surgery which is not medically necessary).
• Symptoms accompanying normal pregnancy (complications are covered).
• Intentional self-inflicted injury, criminal involvement, drug & alcohol abuse.
• HIV / AIDS.
• Stress, anxiety, depression or any mental or nervous disorder unless diagnosed by a psychiatrist and receiving care.
• A back-related condition where there is no physical or radiological evidence.
• General market exclusions e.g. war, riot, strike, civil commotion, terrorism, radioactive contamination.

The above lists are not exhaustive; you should request the full terms and conditions of the policy and go through them in detail.

Providers will generally price cover per €100 of monthly benefit – allowing you to clearly see the premium you’re paying each month and know what the monthly benefit will be should you need to claim. You will have to provide the insurance company with the value of your loan repayments and the insurance company will calculate the premium for you. The quote which you are given will be the cost of your PPI cover on a monthly basis.

PPI policies incorporate an “excess period” -which is the length of time after which the money starts being paid directly into your loan account following an accident/sickness or unemployment, depending on the type of cover you have.

If you are not entirely satisfied with your policy and you cancel your policy within a period of 30 days (known as the cooling off period) from receipt of your insurance schedule or certificate, the insurance company will refund any premiums provided that:

• no claims have been made against the policy;
• you notify the insurance company in writing within 30 days of receiving your insurance schedule or certificate, and
• you return your insurance schedule or certificate to the insurance company for cancellation.

Generally you can cancel the policy at any time by writing to the insurance company. If you choose to cancel your policy after 30 days, most probably you will not receive a refund of any premiums paid, however claim payments will be made for any valid claim that occurs before the cancellation date subject to the policy terms and conditions.

• Cover under a PPI policy will automatically cease and any period of claim will be deemed to end if your obligations under the loan are terminated.
• The insurance company can cancel the policy at any time during the period of insurance by giving you 30 days notice in writing to your address last known to them and any premium paid after the cancellation date will be refunded.
• If a premium remains unpaid for more than 30 days, the policy cover will be automatically terminated.
• Insurance cover will not remain in force if you reach the age of 65 or die. In the case of a joint policy, any remaining eligible person will continue to be covered until the insurance is otherwise terminated subject to certain terms and conditions.
• In the event of fraud, the insurance company may decide to cancel your PPI policy immediately and no refund of premiums will be due.

All monthly benefit payments claimed will be paid directly to your loan account with your bank