Unemployment insurance is still cheap!

Surprisingly, unemployment insurance prices have not risen much and in some cases they've fallen.

We've written a lot about how over-priced payment-protection insurance (PPI) is. This pays your credit-card, loan or mortgage repayments if you have an accident, fall sick, or lose your job, usually for one year. If you want, you can sometimes choose for the protection to just cover you for accident and sickness, or for unemployment only.

With more people losing their jobs, the price of this insurance has been rising. What's more, some lenders have stopped offering it, or have made their terms and conditions even worse. However, whilst some of the cheapest policies have gone up in price they remain much cheaper than lenders' own products and are still reasonable value.

Here's how much personal loan insurance prices have changed from the providers I looked at. All my figures today are based on a 30-year-old policyholder:

PPI for personal loans

Based on a £10,000 loan over 60 months.

Stand-alone provider SecurityFirst's policy has increased 40% to £3 per £100 of monthly repayments. However, it's still massively cheaper than a typical building society, and almost ten times cheaper than banks, or big plcs like Direct Line.

You can get policies even cheaper than SecurityFirst and they're worth looking at. The most notable are iProtect and Pinnacle Insurance. However, all the cheaper plans have waiting periods before you can claim, unlike SecurityFirst (according to the FSA).

Next we'll take a look at a selection of mortgage PPI providers:

Mortgage PPI

Based on £400pm mortgage repayments with 15 years remaining.

PPI for mortgages hasn't changed much, and Nationwide has actually reduced its premiums. However, banks and building societies still charge three or four times more than many independent providers.

Finally I'll look at credit card PPI:

Credit card PPI

I didn't have data for the end of 2006 so I had to use 2004. I also don't have old figures for SecurityFirst or British Insurance (or any other stand-alone provider). These two insurers have comparably good terms regarding how quickly you can claim. There are cheaper policies, but they come with periods of time where you can't claim. They're still worth considering though.

MBNA must have realised its position was just too far out of line, as it's reduced its prices by more than a third.

Most stand-alone providers will pay you a fixed monthly amount regardless of whether you have any debts on your credit card. This means that the first two in the table will pay out all the time. Barclaycard and Capital One will pay out just 10% of your outstanding balance, so if you have £1,000 on your card the most you'll get back is a miserly £100. MBNA will just pay a shocking 5%. What's more, when you buy PPI through your card provider the premiums are added to your credit-card bill and interest charged on it. Sheesh.

Some tips

PPI policies have lots of exclusions and clauses that might make the insurance unsuitable for you. Many people try to claim and find they can't because they haven't fully appreciated the small print. Read the contract and don't sign it until you understand what it means for you.

Remember that more expensive does not necessarily mean better cover, even if it's ten times the price. Compare small print from different providers if you want to find a better quality policy and consider saving up so you can cope in the event of an accident, sickness or unemployment, rather than buying insurance.

> Compare loans at lovemoney.com

> Read Is unemployment insurance up to scratch?

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