Payment Protection Insurance

I’m sure that for most of you the phrase PPI is probably quite an alien one. Well despite this, PPI is actually a very hot matter at the moment; the mis-selling of this product has become so severe that you may have PPI without realising it, let alone knowing what it is!

Payment Protection Insurance (PPI) is plugged by many as a welcome reassurance, a small safety net that we all long for. The idea is that when you take out a loan you will pay a monthly premium from which your loan repayments are then covered. The selling point being that if you find yourself unable to work, be it through sickness, involuntary unemployment or an accident, your PPI will cover this.

Sounds like a pretty good deal, right? Well not necessarily. There are around 20 million PPI policies in the U.K, generating over £5 billion a year for the companies involved. This is down to the fact that the insurance which you are paying costs much more than you think. Let’s look at an example:

Borrow £10,000 over five years at 6.5% interest.
Your monthly repayment without insurance: £195
Your typical monthly repayment with insurance: £230

Whilst the difference in our example may not reflect a huge amount, over the course of your loan this will quickly add up and is something many do not consider when purchasing a PPI. Whilst it is extremely difficult to calculate your monthly repayments on a loan, many banks and building societies will take advantage of this. So much so that you may have been bought insurance without even realising it, companies re-wording your quote to say "the fully protected quote will cost…" If you’ve got a loan it is vital that you check your monthly statements as you may have been paying insurance costs all along.

The real trouble with PPI is that it tends to be appallingly sold and has a lot of disguised costs, which is why all the hype surrounding it has been created. The Office of Fair Trading (OFT) and the Financial Services Authority (FSA) have been investigating deeply into the high-pressure selling tactics that are resulting in so many policies being appropriately mis-sold. They are calling on firms to ensure their selling practices for PPI are in line with regulatory requirements. Due to the fact that most policies are bought with a loan or credit card rather than standalone, many PPI policies bought rely on information provided to you at the time of the sale. Unfortunately for many PPI policies sold, information presented is not correct, therefore resulting in serious mis-selling of the product and a lack of proper compliance.

But it’s not all doom and gloom. The OFT and FSA are investigating PPI in great depth to allow customers who have been treated unfairly and mis-sold PPI the chance to re-claim. The general mis-selling of PPI can range from customers being told the insurance was compulsory, to some not even knowing they had purchased the insurance. There are many areas subject to mis-selling, and these might mean that you could well be eligible for a re-claim. These can include informing the salesperson you already had cover but they insisted you get it anyway; being sold the insurance by someone in a shop who is likely to have no financial background and therefore probably given you misinformation; or in some cases companies automatically included PPI in the initial loan quote, without making it clear at that stage that PPI was optional. Targets for sale staff, training and competency levels, and assessment suitability are also other areas which encourage PPI mis-selling. If you are unsure about this or believe you weren’t given the full information on the policy, write to the company asking for an explanation; you are well within your rights.

Once you are sure that you are eligible for a re-claim, write a letter to the company explaining that you think your insurance was mis-sold and that you want your money back. The authorities are really clamping down on the mis-selling of PPI and the more people make companies aware of this happening, the more likely the system will be to change. If your re-claim is eligible don’t back down; they may not cooperate fully at first. If they continue to refuse re-claim, you can then make a formal complaint to the Financial Ombudsman (FOS); an independent service which settles disputes between financial companies and their customers, and is completely free of charge.

Now for some people, if properly structured, explained and sold, PPI can provide worthwhile cover for them against certain unexpected changes in their personal circumstances. However it really is worth assessing carefully whether you really need a PPI. Savings, family help, or general income replacement policies are all more sensible ways of covering you for the unexpected, with much fewer costs involved. The most important thing to consider is whether the costs outweigh the benefits, and for the majority this isn’t the case. Just be aware; get all the information needed to properly assess whether a PPI is really for you, and never be pressurised into a policy you’re not comfortable with- this is the only way we can improve the quality and outcome of PPI.