Insuring yourself against not being able to make payments may at first seem like a counterproductive thing to do – the more you are forking out in insurance the less money you have to make the payments.

However, in the long term investing in payment protection insurance (PPI) could prove to be the difference in bankruptcy and staying afloat, in the most drastic circumstances.

PPI provides a borrower with a fall-back option, should circumstances mean that they are no longer able to make repayments on their debts.

These circumstances could include sickness, unemployment or some other unexpected accident which detrimentally affects their finances.

Policies are available to cover borrowers for mortgage payments, personal loans and credit card repayments.

This kind of cover is usually offered to the consumer at the time of taking out the debt, although can be tagged onto at a later date as a stand-alone policy.

According to the Association of British Insurers (ABI), some PPI policies will require candidates to be aged between 18 and 65 and be employed for at least 16 hours per week.

Kelly Ostler-Coyle, a spokesperson for the ABI, said: "PPI is a particularly valuable product for a lot of people, particularly in times of an economic downturn, as we are seeing at the moment."

She added that PPI is the type of product that "really comes into its own in hard times", because this is when people are most likely to be made redundant and rely on the backup the policy provides."

"It can give valuable peace of mind as many are unable to cope financially with their commitments when they are off work and looking for alternative employment," added the spokesperson.

Ms Ostler-Coyle also noted that PPI pays out if a policy holder was to die, ensuring that relatives are not left to foot the bill.

According to government statistics, between April 2007 and March 2008 around 553,000 people were made redundant in the UK.

Furthermore, during this period there were 1.7 million unemployed people, which was more than a 100,000 increase compared with the previous year.

However, one problem with PPI that has recently been highlighted is the lack of competition in the marketplace for this product.

The Competition Commission recently found that insurance brokers face little or no competition when selling PPI to consumers.

Consequently, it is estimated that borrowers are overcharged by more than £1.4 billion per year.

This overcharging may be a result of the fact that in the UK more than 14 million PPI policies are sold in conjunction with a loan or credit card as a tag-on option.

Consumers, says the Competition Commission, are largely unaware that they can buy this kind of cover as a stand alone product.

The commission suggests levying a price cap on PPI as a short-term solution to the problem with a view to encourage suppliers to market this product more competitively in the future.

However, when looking at the bigger picture being partially overcharged for PPI could work out much less expensive than being caught without this cover in hard times.