By now I’m sure you have heard the word PPI being mentioned many times. But what is PPI?
● PPI or Payment Protection insurance is a type of insurance that was sold alongside loans and credit cards.
● It was meant to protect you if you were unable to work due to illness, accident or unemployment by paying your monthly payment for you.
● On a credit card the PPI premium was applied to the card every month as a percentage of your outstanding balance.
● On a loan the PPI was added to the loan as a lump sum. For example, if you borrowed £10,000, and the PPI policy came to £2,000, you would owe £12,000. Your monthly payments would be based on repaying £12,000 and not just the £10,000 you borrowed.
Why is there a huge uproar about PPI?
Protecting your credit card and loan payments sounds like a really good idea and it would have been a great idea if the insurance itself and the way that it was sold wasn’t flawed.
● For all claims made on PPI policies, the majority were not paid out so when you needed the insurance most, there was very little chance it would help you.
● The loan or credit card provider did not check that the insurance was suitable for your circumstances before selling it to you.
● The insurance did not pay out if you were self-employed, retired, a student or a contract worker.
● Many people were led to believe that they had to have the insurance or they wouldn’t get the loan or credit card
● The terms and conditions of the PPI were not explained
● The insurance did not pay out for pre-existing medical conditions
● It was not explained that interest would be charged for borrowing money to purchase the PPI
Why did the banks sell PPI if it was not suitable?
The banks sold the insurance because it was very profitable for them. For every policy sold they earnt a fee known as commission. This fee could be us much as 70% or 80% of the cost you paid for the PPI making it very uneconomical for you but highly profitable for the bank.
It has been estimated that £50 BILLION worth of PPI policies have been sold over the last 15 or so years and that 45 MILLION PPI policies have been sold since 2001.
UK banks have set aside more than £40bn for PPI compensation so it is worthwhile checking if you have ever had PPI.