This piece first appeared in Community Care in December 2007
The text here may not be identical to the published text

 

Payment Protection for whom?

 If you’ve taken out a loan or a new credit card recently you will probably have been sold insurance as well. You may not even know you have it. It’s called Payment Protection Insurance and generally it’s vastly overpriced for the limited protection it offers. Best thing to do is to cancel it.

Time was that such advice was seen as radical at best and irresponsible at worst. The banking and insurance industry told us that some people did get paid out by the insurance and they valued it very much. But the Financial Services Authority, the Office of Fair Trading, and the Competition Commission have all now expressed grave concerns about the product, its price, and how it is sold.

Payment Protection Insurance or PPI is supposed to make sure that if you can no longer meet your credit repayments the insurance company will pay them for you. It sounds a great idea. But, like all insurance, you only know if it works when you make a claim. And, as many people have found to their cost, insurers have many ways to avoid paying up.

If you lose your job you will only get covered if you were made redundant compulsorily and there was no hint of that happening when you took the insurance out. If you are dismissed for any other reason forget it. If you are too ill to work then you may not get paid if you have failed to disclose any previous health problems even if they are not relevant to the disease that has stopped you working now. And if you are over pension age or self-employed forget it – the chances of a payout are negligible.

Even if you do jump through all the hoops and make a successful claim you may not get much benefit. Normally the payments do not start for 30 days and then last for no more than a year. On a credit card you will get the minimum repayment each month. On some loans you may just get the interest paid. So one year later you could be left with the same debt and the same problems.

PPI can double the cost of the loan and add pounds a month to your credit card bill. If you really do want PPI never buy it with the credit. Go to one of the independent PPI insurers like www.britishinsurance.co.uk who will charge you around a fifth of the price taken by the banks and credit card companies. If you already have PPI and think you may have been mis-sold there is more advice at www.moneysavingexpert.com


All material on these pages is © Paul Lewis 2007