PPI or Payment Protection Insurance is very much in the news right now with adverts on television, radio, billboards, spam emails and even spam texts. The latter can be very annoying as texts are sent out to hundreds, maybe thousands of numbers indicating that the recipient definitely has a refund of money to come due to miss-sold PPI. The facts surrounding PPI are a minefield with customers not fully understanding how it was sold to them or even if they had it sold to them. Understanding what PPI is and if you have it, or had it, what you can do about it, is essential plus is something that all borrowers need to investigate fully.
The first thing that borrowers need to be aware of regarding Payment Protection Insurance is that it falls under numerous headings including Credit Insurance, Credit Protection Insurance and Loan Repayment Insurance. This kind of insurance means that consumers who are unfortunate, in that they cannot repay their loan because of ill health, disablement, death or maybe redundancy have their payments insured giving peace of mind.
PPI is sold by providers of credit and banks while it is added to the loan repayments to be paid back, along with the loan, to the lender. PPI can be added to loans for cars, finance company loans plus mortgages, while some credit cards also have a type of PPI too that is standard. Some policies also cover specific risks such as accident insurance or disability insurance. If the PPI needs to be used by the borrower the claim benefit goes to the lender even though it is the borrower who has made all the payments.
PPI normally would cover a loan for around twelve months giving the borrower time to find a new job or recover from an illness that may have befallen them. Deciding if PPI is appropriate for individual borrowers is a difficult assessment to make as most people’s circumstances differ so much. There is a lot to think about when considering taking out PPI rendering customers rather helpless if they are not in the know so to speak, while millions of PPI policies had been sold by the mid two thousands.
So, Why is There Controversy Surrounding PPI?
When it comes to taking out insurance customers realise that in some cases making a claim will be rejected for some reason or other. We all know that we need to read the small print to make sure there are no clauses whereby we would not be able to make a claim. For example if you take out contents cover you have to decide whether to take out accidental damage cover, name specific expensive items plus check what the excess would be in the event of a claim. It has been found with PPI that statistically there have been far more rejected claims than with any other type of insurance. The three main reasons for this are:
- The insurance was not underwritten at the point of sale
- Customers did not fully understand whether they would benefit from PPI or if it suited their purpose
- The policy was taken out without understanding the eligibility facts
With most insurance if you did not take advice as to how it would benefit you it is your own fault but with PPI it is very different. Consumers in most cases do not seek to take out PPI they are given it with some customers (40%) even stating that they did not know it had been added to their loans. This is due to the fact of PPI being sold to them in conjunction with the loan at the same time.
The terms and conditions of PPI tended to be very strict adding to their unpopularity. Such exclusion clauses as not paying out on the first thirty days would mean that in terms of a mortgage payment you would probably miss one month’s mortgage before you would qualify to claim. Stress and back pain were commonly excluded from reasons to claim while students and self employed would find it hard to get cover at all.
Complaints regarding PPI being miss-sold were not dealt with adequately for at least ten years with the main culprits of miss-selling being high street banks, one of which sold over £400 million PPI products making them huge profits as the product has an 80% profit margin. This meant that banks made more money from selling PPI than the interest they made on the actual loans the PPI insured. The whole thing was scandalous as companies would make sure that sellers would tell borrowers their loan was covered by insurance without actually telling them it was at a cost or that they would not qualify for the loan if they didn’t have PPI. The fact that they were on sales commission probably encouraged this.