Loan Cover With Payment Protection Insurance

PPI Can be Obtained from an Insurance Broker as Well as a Lender

Feb 15, 2009

Keeping the repayments on mortgages, loans and credit cards to a minimum should be a borrower's priority but many forget the added cost of Payment Protection Insurance.

What is Payment Protection Insurance (PPI)? The UK Financial Services Authority (FSA), an independent body that regulates financial services, describes it as: “Insurance that will pay out a sum of money to help you cover your monthly repayments on mortgages, loans, store and credit cards, if you are unable to work…”

For lenders, because of large in-built commissions, the selling of PPI was hugely profitable, it was the icing on an already profitable cake.

PPI Compensation

However there is now recognition within the UK financial industry that much of the selling of PPI was unfair, some have called it a “protection racket”, and in the same way as “unfair bank charges,” multiple claims for PPI compensation have been lodged.

Many of the UK's best-known lenders including Egg and Alliance and Leicester have been heavily fined for misselling PPI. It is now known, for example, that many borrowers were sold PPI without even realising it and some were told they would not get the loan without taking the PPI.

Reclaiming PPI

For borrowers who recognise this scenario it’s essential to take further advice. However it is crucial that the advice is free and independent, for a whole new industry that will take a percentage of any money refunded has grown around the reclaiming of PPI.

Financial Services Authority

Returning to the FSA and to borrowers who are considering the insurance, it is probable, say the FSA that Payment Protection Insurance will be offered with loans. However it is essential to understand that it does not have to be bought from the lender. It can be brought separately from an insurance broker, and this can be over 50% cheaper.

A loan should not be refused because the customer has not taken the PPI and chosen to shop elsewhere, of course a borrower may decide not to take PPI at all. However they should think very carefully before making this decision. It’s really important, before a decision is made, that time is spent comparing prices.

It’s definitely not a one-size fits all insurance and the FSA have warned of its limitations. This is a warning well worth heeding.

Some points that must be considered are: the policy may not pay out for pre-existing medical conditions or to customers who were aware of impending redundancy.

A bank employee or salesman must advise the customer of the cost of the loan and the cost of the PPI separately. The PPI can be paid for in a lump sum or in monthly instalments. A single payment can usually be added to the loan but be aware that doing it this way will result in interest being charged on it as well.

What Does Payment Protection Insurance Cover?

The FSA says: “What the insurance covers will vary depending on the sort of repayments the policy is designed to protect, and on the terms of the particular policy.”

This information is obtained from the reputable sources listed below and is offered in good faith. However anyone seeking further help or clarification should consult an appropriate financial adviser or the Citizens Advice Bureau.

The copyright of the article Loan Cover With Payment Protection Insurance in Insurance is owned by Neil Gunn. Permission to republish Loan Cover With Payment Protection Insurance in print or online must be granted by the author in writing.