Email to a friend

Payment Protection Insurance (PPI)

Payment Protection Insurance, or PPI as it is more commonly known, is designed to protect you to cover your repayments on your mortgage, loan or credit card should you become unable to work through sickness or injury. Sounds useful, doesn't it? But the fact remains that not only is PPI incredibly expensive it could fail to pay out when you need it the most.

The ins and outs of PPI

Article continues below

It is estimated that in 2007, the PPI market cost borrowers around £7 billion. But there are so many exclusions included within each policy, it's could be likened to throwing money down the drain.

• Lenders often sell PPI policies automatically, with premiums included within your repayments. Some of the worst PPI policies will add more than £1,000 to the cost of a £5,000 loan repaid over three years
• Many PPI policies do not cover self-employed workers, casual or fixed contract workers
• If you have a pre-existing medical condition, PPI won't often pay out
• You can't claim within three months of taking a policy
• If you can claim, they rarely cover more than a year's payments

Mis-selling PPI

The problem lies in that many PPI providers should tell you about these exclusions and that it is optional before they sell you it, but too often they don't. The Office of Fair Trading found that only 20% of PPI premiums collected are actually paid out in claims. It has asked the Competition Commission to investigate how PPI is sold, and it is soon to publish its findings.

The Financial Services Authority (FSA) has been keeping a close eye on the PPI market too. Recently, it fined HFC bank over £1 million for failing to give suitable advice on PPI to its customers by not checking their circumstances. The FSA said: "These and other failings meant that HFC bank put its customers at an unacceptable risk of being sold PPI when it was not suitable for them."

It seems that PPI providers are still failing to treat their customers fairly.

PPI checklist

Before you agree to PPI, there are a number of questions you should ask yourself.

• What safeguards does your employer have in place should you become sick or suffer an injury and are unable to work?
• If you think you need protection, there are other less money-wasting alternatives - such as income protection
• If you do take PPI, make sure that you find out if there are any exclusions included before taking it.
• If you have a pre-existing medical condition, you should make the PPI provider aware of this
• If you need a loan for example, every lender should tell you that PPI is optional, and give you two quotes, one with PPI included and one without. Make sure you get this!

As you can see, PPI really is a waste of money and a poor deal for customers. If you fear you have been mis-sold PPI, contact your provider and ask for a refund. Every provider must have told you it is optional, given you detailed information on the product and told you of the exclusions. If they didn't, you have a good case for a refund!

What to do next:

If you are searching for a loan, choose one without PPI:

Personal Loan Best Buys - £10000 over 5-years without insurance
Personal Loan Best Buys - £5000 over 3-years without insurance