Who sells it?
Banks, loan companies and credit card providers, retailers in
conjunction with store cards and hire purchase companies. It has
become a very lucrative market, estimated to be worth £4.5bn and
making profits of £1.5bn a year.
Why has it attracted so much bad
publicity?
The Financial Services Authority is leading a major crackdown
after finding some firms guilty of
misselling PPI policies to individuals
who would never have been able to claim on the policies because
they were unemployed, self employed or contract workers.
Some consumers have also been sold PPI without having the
policies properly explained to them or were not made aware that it
is an optional extra and not a condition of taking out a loan or
mortgage.
Many people were sold PPI automatically because it was included
in the loan quotation without them realising that they needed to
tick a box to‘opt out’ if they didn’t want it.
What is being done?
The FSA has fined a number of firms for poor selling practices,
but more penalties are expected. The Office of Fair Trading
has referred the market to the Competition Commission after
evidence suggested that consumers were getting a poor deal.
So who should buy it?
If you are employed and want insurance cover
for one year to cover you for sickness, accident or unemployment
and would have no other means of paying your bills, it may be
suitable.
But first check how long your employer would
pay your salary if you were unable to work. Most employers will
cover employees for three, months, but some will cover you for six
or even 12 months in the event of a serious long term
illness.
If you have already got PPI, don’t just cancel
it because of the bad publicity it has received. In the current
economic climate it could be a useful protection if you were to
lose your job and would be entitled to little redundancy pay
through your employer.
Bear in mind that 510,000 people were made
redundant in 2007.
Different types of PPI
There are PPI policies for mortgages, personal
loans and credit cards, each priced differently. Personal
loan PPI costs on average about three to four times as much as
mortgage PPI and about 50 per cent more than credit card PPI.
Points to remember
If you are buying PPI:
- check you are eligible to claim (ie that you are not
unemployed, self employed or a contract/temporary
worker)
- check that you are buying appropriate cover (there are
different PPI policies for loans, credit cards and mortgages)
- consider buying a stand alone PPI policy from British Insurance
or the Post Office, both of which provide reasonably priced PPI
policies
- there are other ways of coping with unemployment/sickness such
as putting aside money each month to provide a rainy day fund
- if you get into serious debt and have to take out an IVA or go
bankrupt, lenders are increasingly repossessing debtors’ properties
to recoup their costs.