Payment Protection Insurance: Is It Just A Scam?

Payment protection insurance (PPI) has taken aarrears, defaults, County Court Judgements (CCJs)
bashing recently. PPI is a type of insurance designed toand, depending on the type of loan product, the loss of
protect repayments on financial products if borrowerstheir home. Payment protection insurance is designed
find that they are in financial difficulty.to make sure that repayments are met, avoiding this
PPI has been examined by the Financial Servicessticky financial situation.
Authority, criticised by Which? and is now underInside PPI
investigation by the Office of Fair Trading. Most ofPPI is available to most people aged 18 to 65 who are
these organisations are concerned about protectingemployed for at least 16 hours a week or have been
consumers' rights. They are worried about:self-employed for a long period. Once borrowers have
· whether consumers are sufficiently wellsigned up for the insurance, they have to wait a
informed at point of sale to make decisions aboutcertain period before making a claim. This is usually 60
whether to have PPI · the wide variation in theto 120 days. Once they do make a claim and have it
cost of PPI policies · the huge profits made byaccepted, their payments can be covered for a period
lenders offering PPI because of the relatively fewof 12 months or more, depending on the policy.
claims made by borrowers · and the lack of PPIOne key thing that borrowers should be aware of is
providers who are not linked to banks or other lenders.that the sellers of some financial products add the
Given these concerns, it's a good time to find out morecost of the PPI policy to the credit being offered. This
about whether PPI is really the right choice formeans that borrowers can end up paying interest on
borrowers.the insurance policy. This is one of the many reasons
Why Have PPI?that PPI selling has been criticised. Borrowers should
It's difficult for borrowers to know how their financialalso look into the cost of the insurance, as this varies
circumstances are going to change. When they arewidely.
taking out a mortgage, loan, credit card, store card orBeyond PPI
other financial product, the sales person often offersMany borrowers do not realise that they do not have
PPI. The reasons why it might be a good idea are:to take out PPI at the time of buying a financial product
· if someone becomes unemployed or is madeand the people who are selling PPI often do not make
redundant · if a long term illness preventsthis clear. There are some stand alone PPI providers
someone from working · if someone is injured andwho may provide a better choice. Borrowers who
is unable to workrepay loans from earnings should also consider an
All of these circumstances mean that borrowers mightincome protection policy, which will protect most of
not be able to meet the repayments on the mortgage,their income rather than individual financial products.
loan, credit card or store card. This could result in