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