What is Payment Protection Insurance?

Payment Protection Insurance or PPI is insurance provided by companies for the purpose of protecting a borrower’s ability to maintain credit repayments in the event that the borrower becomes unable to maintain the repayments due to accident and/or sickness and/or unemployment and, some policies even cover death. It is offered in order to prevent a borrower getting into debt should the unforeseen happen.

Of course, PPI has actually worked out to be a lifesaver for some people but government figures suggest they represent a tiny minority. Statistics reveal under 5% of people ever claim on their payment protection insurance policies and they also show that one in four of these claimants is refused as a result of small print exclusions and administrative faults.
As you probably are already aware PPI can also be staggeringly expensive.
The Citizens Advice Bureau reports that PPI premiums can add extortionate amounts of money to the price of a loan, it has been known for as much as 56% to be added, now that’s serious money!

Of course PPI can offer peace of mind for those worried about their debt payments, but there are some drawbacks you need to be aware of:

• If you take out PPI it can in some cases almost double the actual cost of the loan.
• You may find that you are not eligible for payments for a period of up to six months after starting the policy.
  
• Some PPI policies only cover redundancy so these may not be suitable for the self – employed
• The cost of PPI is sometimes added to the total amount borrowed this means that interest is then charged on both, making it very expensive for the consumer.

Finance payments can also carry high interest charges when lenders add insurance charges to the loan total. You might even have payment protection insurance without even knowing about it, as some unprincipled sales people will automatically include payment protection insurance in the quotes they give you for monthly loan repayments.

One of the major criticisms of PPI is that lenders can easily make a healthy profit out of customers by miss-selling payment protection insurance to them. Very often consumers are given a quote for their personal or secured loan that automatically includes PPI, consumers don’t realise that this is actually an optional cost. There have also been criticisms that PPI policies include too many exclusions and there are found to be many restrictions related to the circumstances under which a pay out will be granted.
You should always be aware of the cost of any finance you take out both with and without payment protection added. This way you can see the difference in cost and decide if PPI is the right cover for you.

Current regulations, set out by the Financial Services Authority, states that every company selling financial products (including mortgage payment protection insurance packages) or services must have a Complaints Procedures setting out how to make a complaint and how they will investigate the complaint. All this must be free of charge and if dissatisfied you can take it to the Financial Ombudsman Service.

Millions of PPI policies are sold every year; many correctly. However, sometimes people are miss-sold, and it’s then that you need to ensure your rights are met and dealt with correctly.