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Payment Protection Insurance: Is It Just A Scam?

Payment protection insurance (PPI) hasarrears, defaults, County Court
taken a bashing recently. PPI is a typeJudgements (CCJs) and, depending on the
of insurance designed to protecttype of loan product, the loss of their
repayments on financial products ifhome. Payment protection insurance is
borrowers find that they are indesigned to make sure that repayments
financial difficulty.are met, avoiding this sticky financial
PPI has been examined by the Financialsituation.
Services Authority, criticised by Which?Inside PPI
and is now under investigation by thePPI is available to most people aged 18
Office of Fair Trading. Most of theseto 65 who are employed for at least 16
organisations are concerned abouthours a week or have been self-employed
protecting consumers' rights. They arefor a long period. Once borrowers have
worried about:signed up for the insurance, they have
· whether consumers are sufficientlyto wait a certain period before making a
well informed at point of sale to makeclaim. This is usually 60 to 120 days.
decisions about whether to have PPI ·Once they do make a claim and have it
the wide variation in the cost of PPIaccepted, their payments can be covered
policies · the huge profits made byfor a period of 12 months or more,
lenders offering PPI because of thedepending on the policy.
relatively few claims made by borrowersOne key thing that borrowers should be
· and the lack of PPI providers who areaware of is that the sellers of some
not linked to banks or other lenders.financial products add the cost of the
Given these concerns, it's a good timePPI policy to the credit being offered.
to find out more about whether PPI isThis means that borrowers can end up
really the right choice for borrowers.paying interest on the insurance policy.
Why Have PPI?This is one of the many reasons that PPI
It's difficult for borrowers to know howselling has been criticised. Borrowers
their financial circumstances are goingshould also look into the cost of the
to change. When they are taking out ainsurance, as this varies widely.
mortgage, loan, credit card, store cardBeyond PPI
or other financial product, the salesMany borrowers do not realise that they
person often offers PPI. The reasons whydo not have to take out PPI at the time
it might be a good idea are:of buying a financial product and the
· if someone becomes unemployed or ispeople who are selling PPI often do not
made redundant · if a long term illnessmake this clear. There are some stand
prevents someone from working · ifalone PPI providers who may provide a
someone is injured and is unable to workbetter choice. Borrowers who repay loans
All of these circumstances mean thatfrom earnings should also consider an
borrowers might not be able to meet theincome protection policy, which will
repayments on the mortgage, loan, creditprotect most of their income rather than
card or store card. This could result inindividual financial products.



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