Payment Protection Insurance (PPI)

Payment protection insurance (PPI) is the umbrella term for insurance that covers loan or credit repayments when a covered event — typically illness, accident, or redundancy — prevents you from earning. In New Zealand, PPI is offered on personal loans, car finance, home loans, and credit cards. It's the same product as loan repayment protection or consumer credit insurance — the term "PPI" was popularised (and gained a negative reputation) in the UK following a mass mis-selling scandal between the 1990s and 2010s.

In New Zealand, PPI has not been subject to the same scale of regulatory action as in the UK, but the Financial Markets Authority (FMA) has identified add-on insurance products — sold at point of sale alongside loans, credit cards, and vehicle finance — as a surveillance priority. The concern is the same: commission-driven sales without adequate suitability assessment, leading to people paying for insurance that doesn't fit their circumstances or that has exclusions that render it valueless for their specific situation.

This doesn't mean PPI is a bad product — it means you should buy it deliberately, having assessed whether it suits your situation, rather than accepting it reflexively at the loan counter. Genuine PPI, correctly structured and honestly sold, provides real value for borrowers who face employment or health uncertainty.

PPI provides genuine value in specific circumstances. Borrowers with limited emergency savings — fewer than three months of repayments — face immediate distress if income is interrupted. PPI bridges the gap between the income interruption and stabilisation, preventing arrears, credit file damage, and the compounding stress of debt falling behind.

Borrowers in industries with higher redundancy risk — technology, retail, media, construction contracting — face a meaningful probability of job loss that a loan repayment protection product directly addresses. With NZ unemployment at 5.5% in 2026 and some sectors experiencing structural contraction, the actuarial case for PPI is stronger than it was during the post-pandemic labour market tightness of 2021-23.

Borrowers without existing income protection or disability cover find that PPI, though narrowly designed around a specific loan, provides income security in a way that WINZ's Jobseeker Support (approximately $350/week) cannot. For someone with a $30,000 personal loan whose only alternative in a job loss is WINZ, PPI's targeted repayment cover is genuinely valuable.

The cooling-off right: under NZ consumer law, you have a right to cancel PPI within a specified period (typically 30 days for many products — some insurers like Autosure specify this explicitly) and receive a full refund. Use this right if you feel pressured at point of sale — take the cover, read the policy document carefully at home, and cancel within the cooling-off window if it doesn't suit your circumstances.

PPI mis-selling occurs when the product is sold to someone who cannot claim under it or is unlikely to receive value from it. Common scenarios include: self-employed borrowers sold redundancy cover (they can't be made redundant); retirees sold working-age disability cover; fixed-term contractors sold cover that excludes their planned contract end; borrowers with pre-existing conditions that exclude the most likely claim event.

Protect yourself with three questions before signing. First: am I eligible to claim under every cover component I'm paying for? If you're self-employed, redundancy cover is irrelevant — ask for the version without it. Second: are there exclusions that would apply to my most likely claim scenario? If you have a bad back, ask directly whether musculoskeletal conditions are excluded. Third: what is the total premium as a percentage of my monthly repayment? Industry guidance suggests PPI is broadly fair value if the premium is around 0.5%–2% of the monthly repayment. If you're paying 5% or more, the value equation is questionable.

Ask whether the premium is added to the loan (increasing the balance and attracting interest) or billed separately. Adding a PPI premium to a 60-month loan at 12% interest means you're effectively paying 12% interest on your insurance premium for five years.

If you believe you've been mis-sold PPI in NZ, the FMA provides a complaints pathway. The Insurance & Financial Services Ombudsman (IFSO) is also available for disputes with licensed insurers.

Point-of-sale PPI (sold at the loan counter or dealership) and standalone loan protection (arranged through an insurance adviser or directly with a life insurer) are both payment protection products — but they differ in underwriting depth, price, and suitability assessment.

Point-of-sale PPI is typically group-underwritten: everyone in a broad risk pool pays a similar rate, and individual health or employment circumstances are factored in through blanket exclusions rather than individual underwriting. This makes it quick and easy to buy but means the product isn't calibrated to your specific risk profile.

Standalone products from NZ life insurers (the mortgage repayment covers from AIA, Partners Life, etc.) are individually underwritten — your specific health history, occupational risk, and circumstances are assessed. The premium is higher initially but the cover is more precisely tailored, and the adviser relationship ensures ongoing suitability as circumstances change.

For lower loan amounts (under $50,000), point-of-sale PPI may be proportionate and sufficient — the individual underwriting overhead of a standalone policy doesn't make economic sense. For larger loans, mortgage debt, and borrowers with complex circumstances, individually underwritten cover from a life insurer arranged through a financial adviser typically provides better value and more appropriate protection.