The facts about PPI

PPI, which stands for Payment Protection Insurance, has been at the centre of controversy over the past year, after it was found that many policies were mis-sold by lenders and companies to consumers that were unable to benefit from it, did not actually know what it was for, and in some cases did not even know that it had been added to their finance.

Payment Protection Insurance can prove invaluable to some people but is not suited to all borrowers. It is also quite expensive insurance, and therefore consumers should be made fully aware of the cost and given the option with regards to whether they wish to take out the cover or not.

Anyone that has been sold PPI could be entitled to compensation if the PPI was mis-sold to them. Below are some frequently asked questions with regards to Payment Protection Insurance:

What is Payment Protection Insurance?

Payment Protection Insurance is also known simply as PPI, and this is a form of insurance cover that is designed to meet repayments on certain forms of finance for a set period of time in the event that you are unable to pay due to sickness, accident, or redundancy. This form of insurance is offered with finance such as loans, store cards, and credit cards amongst other things.

Why has PPI become so controversial?

PPI has been at the centre of controversy because it was found that many people had been mis-sold this insurance in one way or another. In some cases the lender had failed to properly provide details on the benefits of PPI, so the borrower took out the cover without actually knowing what it was really for.

In other cases the cover was sold to borrowers that could not really benefit from it, such as self employed people that could not claim for redundancy. In a number of cases the cover was simply added to the loan without the knowledge of the borrower.

How much does PPI cost?

The cost of PPI can vary based on a number of factors, such as the type of finance you are taking, the amount you are borrowing, and the company that sells you the PPI. However, as a rule PPI is an expensive form of cover and can really bump up your monthly repayments as well as the amount that you pay overall.

How many PPI policies are in force and how many claims are successful?

It is estimated that there are around 20 million PPI policies in force in the UK, which have been sold tom consumers that have taken out various forms of finance. However, according to the Office of Fair Trading only one in every five claims on PPI policies is actually successful.

I was told by a lender that I had to take out PPI to get the finance I needed. Is this true?

Not at all. Firstly there is no obligation to take out this insurance with any particular company, including the company through which you are taking out finance.

Therefore if you do wish to take out this cover it is advisable to shop around to see whether you can get cover at a more competitive prices, as this insurance can be expensive but the cost can vary from one provider to another.

Secondly, this is not a compulsory form of cover, and there is nothing to state that you must have PPI in order to get finance, so you should not let the lender tell you otherwise.

I do want to take out PPI but don’t want to get ripped off. What do I do?

The best way to ensure that you get the right policy at the right price is to shop around. Compare different policies and prices, which can be easily done online.

Make sure that you carefully read the small print, as there are many exclusions with this type of cover, and this will enable you to see whether you policy that you take out is going to be right for you or whether you will simply end up wasting thousands of pounds.

Also, bear in mind that from 2008 the Financial Services Authority plans to introduce a new guide that will enable consumers to enter their requirements and be directed to a range of policies that are likely to suit their needs based on the details entered on the website, which should make it easier to find the most suitable PPI policy.

I feel that my PPI policy was mis-sold to me. Can a make a claim for compensation?

This depends on a number of factors, such as the circumstances under which you were sold the cover, why you feel that it was mis-sold, and when the policy was taken out. PPI came under the FSA umbrella in 2005, so any policies purchased before this time will not be covered by the current FSA regulations on PPI.

However, it is still a good idea to speak to the provider and complain, as the FSA has been coming down hard on lenders that have mis-sold this cover.