Paul Sanchez
Payment Protection Insurance (PPI) is an insurance policy that covers repayments on mortgages, loans, credit cards, and other types of credit in the event that the policyholder is unable to work due to illness, accident, death, or unemployment. PPI was often sold alongside these financial products, but it is not a requirement to purchase it from the provider of the loan, mortgage, or credit. The price of PPI can vary significantly depending on the lender, and it may be charged monthly or added to the loan upfront as a single premium policy, which can increase the total cost to the customer. PPI has been the subject of widespread mis-selling controversies, with many customers claiming compensation for policies that were mis-sold to them.
| Characteristics | Values |
|---|---|
| Full Form | Payment Protection Insurance |
| Use | Covers monthly repayments on mortgages, loans, credit/store cards, catalogue payments, car finance, etc. in case the customer is unable to work due to illness, accident, death, or unemployment |
| Cost | The price of PPI varies significantly depending on the lender. It can be charged monthly or added to the loan upfront. |
| Mis-selling | PPI was often mis-sold alongside loans, credit cards, and mortgages. Millions of people have claimed back mis-sold PPI. |
| Redress | UK banks provided over £22 billion for PPI mis-selling costs. Banks were fined for their role in the mis-selling controversy. |
| Cancellation | PPI can be cancelled at any time, and a refund may be provided for the remaining term. |
| Other Names | Credit card repayments cover, credit repayment protector, mortgage repayments protector, mortgage care, credit care, loanguard payment protection cover, creditguard |
| Deadlines | The UK regulator set a deadline of 29 August 2019 for PPI complaints. |
| Not to be confused with | Property Protection Insurance (PPI) in Michigan, which covers damage to fixed objects like parked vehicles or buildings |
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What You'll Learn
- PPI is sold with loans, credit cards, mortgages and other types of credit
- It pays out a sum of money to help cover repayments if you can't work
- PPI was widely mis-sold, resulting in fines and redress
- PPI premiums can be charged monthly or as a single premium policy
- You can cancel PPI at any time and may be entitled to a refund
PPI is sold with loans, credit cards, mortgages and other types of credit
Payment Protection Insurance (PPI) is an insurance policy that pays out a sum of money to help cover monthly repayments on mortgages, loans, credit cards, or other types of credit in the event that the policyholder is unable to work. This may be due to illness, accident, death, or unemployment. PPI is typically sold by banks and other financial institutions alongside loans, credit cards, mortgages, car finance, and catalogue accounts. It is important to note that PPI is not compulsory, and consumers have the right to shop around for the most suitable policy.
The cost of PPI can vary significantly depending on the lender and the type of credit it is associated with. On lump sum loans, PPI premiums are typically paid upfront, ranging from 13% to 56% of the loan amount, according to the Citizens Advice Bureau (CAB). This upfront payment, known as a "Single Premium Policy", results in additional interest being incurred, further increasing the total cost for the customer. For credit cards, PPI is calculated differently since there is initially no outstanding balance, and it is unknown if the card will be utilised. In this case, a monthly premium is charged, typically between 0.78% and 1% of the card balance, which can become expensive when interest is added.
The way PPI is paid for depends on what it is sold with. For example, with some loans, the entire cost of the PPI premium is added to the amount borrowed, and the borrower repays it over the loan term, paying interest on the premium. This type of “single premium” PPI policy was banned in 2009 due to concerns about unfair selling practices and pressure tactics used by some lenders. On credit cards, PPI is typically paid through monthly premiums added to the card balance, with the cost being a certain percentage of the total balance owed.
It is worth mentioning that PPI has been the subject of widespread mis-selling controversies, resulting in millions of people claiming compensation. Many banks and financial institutions in the UK have been fined and required to compensate customers who were mis-sold PPI. Consumers who believe they have been mis-sold PPI can refer to their credit agreements or statements, as PPI may be mentioned under various names, such as "credit repayment protector" or "mortgage care". They can also contact the business responsible or seek assistance from the Financial Ombudsman Service.
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It pays out a sum of money to help cover repayments if you can't work
Payment protection insurance (PPI) is a form of income protection that pays out a sum of money to help cover your monthly loan or debt repayments if you're unable to work due to sickness, accident, or involuntary unemployment. PPI policies typically cover up to 70% of your annual income and provide payouts for up to 12 months if your claim is successful. The cost of PPI can vary significantly depending on the lender, and it is often sold alongside loans, credit cards, and mortgages.
PPI can be useful if you don't have savings or other forms of income protection, such as critical illness cover or loan protection insurance. However, it is important to carefully consider your circumstances before taking out a PPI policy. For example, if you're on unemployment benefits, PPI may not be suitable, as there may be requirements to prove continuous employment. Additionally, if you have a sizeable savings cushion and illness coverage, a separate debt-specific policy like PPI may be unnecessary.
When considering PPI, it is essential to shop around and read the fine print carefully. Pre-existing conditions are typically not covered, and some illnesses may be excluded. You should also ensure that you understand all the costs, conditions, and exclusions involved. While PPI can provide financial protection in the event of unexpected unemployment or illness, it is not a cheap option, and there may be more suitable alternatives available.
In the past, there have been scandals involving the mis-selling of PPI, where customers were sold policies without fully understanding what they were paying for. As a result, billions of pounds have been paid out in compensation to affected customers. However, PPI can still be a valuable form of income protection if you find yourself unable to work and need help covering your loan or debt repayments.
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PPI was widely mis-sold, resulting in fines and redress
Payment Protection Insurance (PPI) is an insurance policy that pays out a sum of money to help cover repayments on mortgages, loans, credit/store cards, or catalogue payments if the policyholder is unable to work due to illness, accident, death, or unemployment.
The mis-selling of PPI was due to a variety of factors, including providing customers with misleading information, recommending unsuitable products, selling PPI as "essential," and adding PPI to loans without the customer's knowledge. In some cases, PPI was sold to people who would never have been able to claim, such as the self-employed. The Office for Fair Trading became involved in 2007 and referred PPI to the Competition Commission after it was concluded that "consumers get a poor deal."
As a result of the mis-selling, banks and financial institutions in the UK were required to provide redress to their customers. Between April 2011 and November 2015, firms paid out £22.2 billion in redress to more than 12 million customers in compensation. By 2016, this number had risen to £40 billion. The Financial Ombudsman Service stated in their 2009/2010 annual report that 30% of new cases referred to PPI. Despite the high cost of compensation, the banks escaped heavy regulatory fines as the Financial Conduct Authority (FCA) prioritized ensuring that victims received fair and quick compensation.
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PPI premiums can be charged monthly or as a single premium policy
Payment Protection Insurance (PPI) is an insurance policy that provides financial assistance to cover monthly repayments on mortgages, loans, credit cards, or catalogue payments if the insured is unable to work. This inability to work may be due to illness, accident, death, or unemployment, depending on the policy.
Alternatively, a single premium policy involves adding the full cost of the PPI premium to the loan upfront. The borrower then pays off the premium over the term of the loan, along with interest, typically at the same APR as the original sum borrowed. This type of single premium PPI policy was banned in 2009 due to its potential to significantly increase the total cost of the policy for the customer.
The price of PPI can vary depending on the lender, and it is not a cheap option. It is important to note that purchasing PPI is a choice, and it is not necessary to buy it from the provider of the loan, mortgage, or credit. Shopping around and requesting quotes for policies with and without PPI can help find the most suitable option.
PPI policies have been the subject of widespread mis-selling, with many policies sold alongside loans, credit cards, and mortgages without the borrower's knowledge or consent. As a result, consumers have been able to reclaim PPI payments and statutory interest charges.
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You can cancel PPI at any time and may be entitled to a refund
Payment Protection Insurance (PPI) is an insurance policy that pays out a sum of money to help cover your monthly repayments on mortgages, loans, credit/store cards, or catalogue payments if you are unable to work. This could be due to illness, accident, death, or unemployment, and the specifics of what is covered will be outlined in your policy. PPI is typically paid monthly, but can also be paid upfront as a single premium policy, which is usually added to the loan amount. This type of insurance is not cheap, and the price can vary significantly depending on the lender.
You can cancel PPI at any time. If you pay off your loan or hire-purchase agreement early, cancel your credit card, or simply decide you no longer need the cover, you can ask your lender to cancel your direct debit and cancel the policy. If you paid the insurance upfront, you may be entitled to a refund for the remaining term of the policy.
It is important to note that PPI has been the subject of widespread mis-selling by banks and other financial institutions in the UK. Many policies were mis-sold alongside loans, credit cards, and mortgages, and customers were often pressured into buying PPI from the provider of their loan or credit. As a result, banks have been required to provide redress to affected customers, with some setting up provisions to compensate those who were mis-sold PPI.
If you believe you have been mis-sold PPI, you can submit a complaint to your bank or provider. However, there was a deadline of 29 August 2019 set by the UK regulator for PPI complaints, after which claims could no longer be submitted. Nonetheless, you may still be able to complain to your bank or the relevant financial ombudsman service, depending on your specific circumstances.
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Frequently asked questions
PPI stands for Payment Protection Insurance.
PPI covers your monthly repayments on mortgages, loans, credit/store cards, or catalogue payments if you are unable to work. This may be due to illness, accident, death, or unemployment.
The price of PPI varies depending on the lender. A 2018 survey of 48 major lenders found that the price of PPI was 16-25% of the debt amount. PPI premiums can be charged monthly or added to the loan upfront.
Yes, you can cancel your PPI at any time. If you pay off your loan early or decide you no longer need the cover, ask your lender to cancel the policy and direct debit. If you paid the insurance upfront, you may be entitled to a refund for the remaining term.
