Payment Protection Insurance

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Payment Protection Insurance

Payment protection insurance (PPI) policies are sold to more than 7 million people in the UK each year, usually alongside mortgages, credit cards, loans, or other credit agreements.

This form of insurance is intended to cover repayments for a period on unsecured loans in the event that a borrower loses their job, becomes too ill to work, or dies.

However, research shows that only 4 per cent of customers ever actually claim on their PPI policies, while one in four of these claims are refused due to the numerous exclusion clauses often included in the policy small print. The income protection policies are invalid if, for example, you have a pre-existing medical condition, while stress and back problems are frequently not covered and recurring conditions are also excluded.

Even more worrying is the fact that many people may have payment protection insurance without even knowing about it. Some unscrupulous sales people automatically include payment protection insurance in the quotes they give for monthly loan repayments the customer's permission.

The constant mis-selling of PPI means millions of borrowers are paying for insurance that they don't need or can't ever use.

PPI Premium Costs

PPI premiums can be extremely high. According to the Citizens Advice Bureau, the cost of payment protection cover can add between 13% and 56% to the cost of a loan you are taking out. This way of selling PPI is known as 'single premium' and means that payments also come with high interest charges when the insurance is added to the loan total.