What is Payment Protection Insurance?
Payment Protection Insurance (PPI) is generally sold alongside consumer credit agreements on the premise that they protect the borrower against them not being able to make their repayments in the event of accident, sickness or unemployment. Unfortunately, it frequently fails to do so.
If you've taken out a mortgage, a personal loan, applied for a credit card and/or consolidated your debts, payment protection insurance will almost certainly have been discussed. When you enter into financial agreement you're often expected to take out Payment Protection Insurance (PPI) at the same time. The policy is meant to cover the repayments if you become unable to afford them due to a change in your personal circumstances, such as illness, unemployment or because you have an accident.
Whilst there is a place for PPI to give you piece of mind government figures reveal only 4% of people ever claim on their PPI policies and that one in four of these claimants is refused. Small print exclusions and administrative nightmares are usually to blame.
There are approximately 20 million policies already in force with annual gross premiums in excess of £5 billion.
When you take into account the fact that premiums for PPI policies can add anything from 13% to 56% (CAB research) or more to the total amount to be repaid on a loan agreement plus the actual cost of the policy is grossly inflated by a third parties commission, you can understand why you have been pushed to take this policy.
There are also cases where, you might have Payment Protection Insurance and not even know about it. Some lenders automatically include payment protection insurance in the quotes they give for monthly loan repayments.
How much is PPI costing you?
CAB table of premiums with and without PPI
Loan Type
Loan
Amount
PPI
Premium
Premium as
% of total loan
Unsecured personal loan
£8,933
£2,217
25%
Unsecured personal loan
£11,000
£5,133
47%
Hire purchase for car
£5,059
£2,157
43%
Hire purchase for car
£6,895
£2,317
34%
Unsecured loan
£5,600
£744
13%
Secured loan
£25,000
£12,127
49%
Secured loan
£35,000
£10,150
29%
Conditional sale for car
£4,300
£2,394
56%
Unsecured personal loan
£13,000
£3,367
26%
(Source Citizens Advice Bureau evidence report findings Sep '05)
There are approximately 20 million policies already in force with annual gross premiums in excess of £5 billion. Premiums for PPI policies can add anything from 13% to 56% (CAB research) or more...
Were you mis-sold PPI?
Did the sale of your payment protection insurance follow the rules? Here's how to work it out, and what to do about it.
