Payment protection insurance

PPI policies and your payment protection claim

Payment Protection Insurance (PPI) is a form of insurance sold alongside a loan. It guarantees that, if you’re made redundant or suffer an accident or illness through no fault of your own, during the period of the loan, the insurance will pay some of the premiums for you.

In itself, this is no bad thing. However, there are three smaller drawbacks and one very big potential problem with it. PPI is expensive, especially when bought through the lender of the loan; the same product bought elsewhere can be far cheaper. It can add considerably to your loan repayments (it’s often more than the cost of the loan interest), and you’re relatively unlikely to benefit from it; the Competition Commission found in June 2008 that the average payout ratio of personal loan PPI is 15 per cent – and just 11 per cent for credit card PPI. If you do claim, the length of time may be restricted; many PPI policies specify that you can claim only for 12 months (even if your illness or unemployment lasts longer).

So much for the smaller drawbacks. These are factors that you can weigh up and decided whether you want this product or not. But many of the PPI policies in existence were missold. That’s far more serious – and has allowed many people to reclaim their premiums or even have their loan debt written off. Many high street lenders have been heavily fined as a result of this misselling.

Was your PPI policy missold?

If you have PPI, do you have a case against your lender? And if so, what should you do about it?

Whether or not your PPI policy was missold depends on what happened when you applied for the loan. For example, if you were told that that taking out the PPI was compulsory, or that you couldn’t get the loan without applying for the PPI, that is definitely incorrect.

Some people were sold PPI without even realising they were buying it. Needless to say, that also counts as misselling. For example, if you applied for a loan and were quoted the rates for a “fully protected” loan. Those words mean that the loan is covered by a PPI policy. But if the seller didn’t mention that fact, you would have a very strong case against them. Similarly if the PPI was automatically added to your loan.

A third category of misselling arises when people’s circumstances made the cover worthless from the outset. For example, self-employed people are not covered in the event of losing their job; nor are retired people or those who were unemployed when they took out the job, having no job to lose. PPI is not designed for these classes of people – and they should certainly not have been recommended to take it out.

Also, people with pre-existing medical conditions are unlikely to have been covered for those conditions by the PPI policy. If this applies to you and you weren’t told about this at the time of the sale, you could also have a case. Last but not least, you might have been covered through your or your partner’s work, in which case you wouldn’t have needed PPI in the first place.

Chances of a successful PPI claim

If any of these situations apply to you, and you took out the policy in the last six years, it would definitely be worth making a claim. (Even if your policy is older, and/or you made a claim on it, there are still some chances of success.)

Some well-known high street lenders have had over 90 per cent of PPI complaints found against them by the Financial Ombudsman. These include Barclays, Black Horse, Capital One, Egg, Lloyds TSB, MBNA, Northern Rock and RBS. So if you have a strong case, the odds are certainly in your favour.

What to do if your payment protection was missold

  1. Check your policy terms and conditions. If you can’t find them, write and ask for a copy. Ensure that these apply to the loan you took out and have not been changed or updated since.
  2. Write to your lender and complain. If your claim is rejected, write to them again. If the lender still won’t budge, write to the Ombudsman.
  3. Don’t give up – and don’t be deterred by an initial refusal or rejection from the lender. Remember that, if you have a case, right is on your side: something recognised by the Ombudsman who decided in the consumer’s favour in around 90 per cent of cases throughout 2008-9.
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