Payment Protection Insurance, PPI, is currently generating a lot of news. This is because the FSA (Financial Services Authority), amongst others, is tackling the issue of poor selling or mis-selling of PPI.
PPI, sold in the right circumstances, can be helpful.
But what exactly is PPI? What does it cover? How much does PPI cover cost and where can it be bought?
These and other matters around PPI will be covered in a series of articles here on MoneyHighStreet.
So firstly, what is PPI and what does it cover?
PPI is basically a type of insurance. It is insurance that may be taken out alongside a loan, mortgage, credit card or store card.
Under a PPI policy, an agreed sum of money is paid out each month to fully cover, or cover a percentage of the payment due on your mortgage or loan etc if you are unable to work.
You may be unable to work and meet the monthly payments yourself for a number of reasons, including
- becoming unemployed, through no fault of your own
- having an accident or
- becoming sick
Each PPI policy will have its own terms. Typically though the insurance will cover your mortgage or loan payments for 12 or possibly 24 months. After the period, as defined in your particular policy, you have to cover the monthly payments yourself.
For credit and store cards, the monthly payment will at least pay the minimum amount owed each month. Sometimes it will pay a percentage of your outstanding balance.
The outstanding balance either then has to be paid off by yourself or you start incurring additional charges to your card for interest payments.
Be aware that the payments for credit card or store cards will generally be based on the amount owed at the time you claim. This means any balance built up thereafter is usually down to you to pay.
Payments will only be made if your personal circumstances are covered by the PPI policy you have taken out.
It is vital therefore that you fully understand what cover you are buying and ensure that the PPI policy meets your requirements.
To be clear on exactly what PPI cover you are buying, or have already bought, you need to check the key policy details. You can either do this yourself or seek guidance from your provider.
Using the policy details, you will be able to determine what the policy covers, what exclusions there are (what is not covered) and how long payments will be made should you make a claim.
What is the PPI Mis-Selling scandal, why has Payment Protection Insurance been mis-sold?
Many thousands of people have been sold PPI policies which were totally unsuitable for them – for example some were sold a policy that they could never claim against as they were self-employed or retired.
According to the Financial Ombudsman, the number of complaints over mis-sold PPI leapt to over 30,00 between October and December 2011, nearly 60% more than the previous 3 months.
Some people have even been sold PPI without even realising it, let alone agreeing to it.
Banks made huge profits from selling the policies alongside mortgages, loans and credit cards but only 10% of policies ever paid out. The policies were invariably massively overpriced compared to other standalone Payment Protection Policies available on the market.
If you believe you have been mis-sold a PPI policy, you can use a claims company, such as PPI Return, to act on your behalf to try and get your money back. Be aware that whilst many will state ‘No Win No Fee’, if you do win your claim they will take a chunk of the money you receive as their fee.
You can, if you prefer, pursue the claim yourself directly with the lender or through the Financial Ombudsman or Financial Services Compensation Scheme.
So, should you buy Payment Protection Insurance?
The bottom line, as with all personal finance matters, is that you have to make this decision based on your own specific set of circumstances. Seek professional advice if need be.
That said, we at MoneyHighStreet. com believe being prepared is vital and that means making sure your outgoings are protected should you find yourself not able to work. One option to achieve this is through PPI cover – and despite the bad press, there are some good policies available at a good price.
If you believe you have been mis-sold a PPI policy
– PPI return website – a claims company to help you make your claim
– Financial Ombudsman website – if you want to make a claim yourself