Around 30% of personal loans come with payment protection insurance (PPI) that the borrower didn't even know they bought. I know because I used to sell it.
Here's how it works: you lose your job or get sick, the insurance makes your loan payments for a while. Sounds good. But the cost is around 10-15% of your monthly payment added to the bill. On a $300 monthly payment, that's $30-45 extra per month. Over four years, that's around $1,500 to $2,000 in premiums.
I had a client named Marcus who took a $12,000 loan with PPI. He didn't even know it was on there. He just saw the "protection" box checked and assumed it was mandatory. It wasn't.
He paid $38 extra a month for 18 months before I caught it. That's around $680 down the drain. He'd never filed a claim. He was young, healthy, and had a stable job. He didn't need the insurance.
Here's the truth: PPI is overpriced. The fine print excludes most claims. Pre-existing conditions? Denied. Self-employed? Often denied. Part-time work? Denied. I've seen claim denial rates of around 60-70% on these policies.
If you're worried about losing income, you're better off putting that extra $30-50 a month into an emergency savings account. If you never lose your job, you keep the money. If you do, you have cash to cover the payments. Same protection, more control.
Marcus canceled the PPI after I told him. He put the $38 a month into a high-yield savings account. Two years later, he had around $900 saved. He used it for a down payment on a car.
If a loan officer offers you "peace of mind" insurance, ask for the denial rate. Ask for the list of exclusions. Then say no.
I will keep posting updates on this. Check back soon.
P.S. Cooper once ate a $20 bill I left on the coffee table. That's also a waste of money, but at least it was funny. Loan insurance is not funny.
James