PPI explained

Over the past few years, payment protection insurance (PPI) has received a lot of negative publicity with financial providers being accused of mis-selling it to customers.

If you’re not sure exactly what PPI is and whether you have been mis-sold it, here’s our beginner’s guide to payment protection insurance…

PPI is a type of insurance

PPI is a financial product that can added to credit and loan arrangements such as credit cards and personal loans. It offers insurance to protect you in certain situations where you might not be able to meet your agreed monthly repayments and could face penalties from your creditor or lender.

For instance, PPI is designed to protect you in the event that a loved one dies with outstanding debts, if you become ill or disabled and are unable to work, if you lose your job or if you face another severe financial difficulty that affects your ability to pay of your debt.

Making a successful PPI claim

Although you purchase the PPI protection, if you make a successful claim then the money paid out will be sent straight to your lender to cover your debts rather than given to you in order to pay them off.

How much money you receive depends on the agreement, but on the whole PPI tends to cover the minimum payment outlined by your provider – this will not affect you if you’ve taken out a fixed payment personal loan, but may have an effect if the PPI is covering a credit card debt. Most claims pay outs are for a fixed term as well, meaning they could come to an end after 6 or 12 months. At this point you will need to find a way of continuing to finance the debt repayments yourself.

What isn’t covered with PPI?

Even if you think you are covered, you need to read the small print as sometimes claims can be made that do not meet the terms of your PPI contract. For instance, if you are made redundant you may not be entitled to claim on your payment protection insurance if you receive financial compensation from your former employer. Equally, some medical situations may not be covered if you have an existing long-term medical condition.

Why does PPI get a bad reputation?

The reason PPI has hit the headlines in recent years is because the number of rejected claims are much higher than other insurance products. Many people opt for payment protection insurance as an ‘add on’ when taking out a new credit card or personal loan and don’t carefully study the contract, meaning they are caught out when it comes to making a claim further down the line.

Another controversy surrounding PPI is the fact that for many years, banks and building societies added it onto their other products without specifically asking customers whether they required this insurance. This technique boosted their profits and led to many borrowers paying more than necessary for their financial product without even being aware that they had taken out payment protection insurance.

When these practices came to light, the Competition Commission and other financial organisations undertook reports to uncover the full extent of this mis-selling and regulations were changed to make the addition of PPI to other financial products more transparent. Thousands of consumers who were sold payment protection insurance without their knowledge successfully managed to reclaim the PPI charges added to their credit cards or security loans. They also managed to claim back the interest charges on these payments, with some successful cases awarding the claimant thousands of pounds.

Can PPI be a good thing?

This is not to say that PPI is necessarily a bad thing; the right policy can offer peace of mind and financial protection, so that if you do suffer times of hardship the last thing on your mind is dealing with outstanding loans or credit card debt. Rules have also become stricter surrounding the selling of payment protection insurance, so that you will now be given the option to purchase it as an extra product and can research the small print thoroughly before deciding whether to go ahead.

How can I apply for a PPI refund?

If you think you may have been mis-sold PPI when taking out a loan or form of credit, a solicitor or claims management firm can help you to recoup the needless costs you have paid towards this unwanted policy. Be aware, however, that fees and possibly commission on the sum reclaimed will be charged by these firms or professionals, so it is worth considering how much you are likely to receive before making any formal complaint. Remember to include interest on all PPI payments when working out the potential total to reclaim.

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