Payment Protection Insurance Explained
Because banks like to complicate things with their jargon it is sometimes hard to know exactly what payment protection insurance actually is. Here we try to cut through that jargon and just give you payment protection insurance explained easily and simply.
PPI is an insurance plan – Payment Protection Insurance.
Loan Companies and Credit Card Companies 'sell' PPI to their customers to potentially help them in the event that
they are unable to repay their loan or credit card due to accident, sickness, unemployment.
However, it is clear that the main reason that loan and credit card companies sell PPI is to make a profit! As statistics
reveal only 4% of people ever claim on their PPI policies and that one in four of these claimants is refused. Small print exclusions and administrative nightmares are usually to blame.
Even more worrying, is that many people don’t even know that they have bought payment protection insurance with their loans and credit cards. Some unscrupulous salespeople automatically include payment protection insurance in the quotes they give for monthly loan repayments.
What does PPI cost?
- Loan Type Loan Amount PPI Premium Premium as % of total loan
- Unsecured personal loan £8,933 £2,217 25%
- Unsecured personal loan £11,000 £5,133 47%
- Hire purchase for car £5,059 £2,157 43%
- Hire purchase for car £6,895 £2,317 34%
- Unsecured loan £5,600 £744 13%
- Secured loan £25,000 £12,127 49%
- Secured loan £35,000 £10,150 29%
- Conditional sale for car £4,300 £2,394 56%
- Unsecured personal loan £13,000 £3,367 26%
- (Source Citizens Advice Bureau evidence report findings Sep '08)
The Citizens Advice Bureau reports that PPI premiums can add between 13% and 56% to the price of a loan,
Payments can also carry high interest charges when lenders add insurance charges to the loan total.
Imagine not knowing that you have paid £3000 for an insurance policy that was worthless?
Quick Facts:
Average Claim is £3000
There have been 42 million PPI policies sold in the UK
UK Banks make £5 billion a year in profit selling PPI
What have the loan companies been doing?
Since 1974 loan and credit card companies have tried a number of different ways to make money in addition to just selling a client a loan.
The most lucrative way was to sell the client a PPI policy where the bank usually makes 85% commission on the sale.
Loan Companies have not been following the correct procedures in the sale of PPI and this has meant that a vast majority of the PPI policies sold since 1974 have been incorrectly sold (Mis-sold)
Typical mis-selling techniques are:
- Not telling the customer the PPI policy has been added
- Telling the client that PPI is compulsory
- Not asking the client about previous medical conditions that means the PPI is worthless
- Not asking the client about their employment status which means the PPI is worthless
Quick Facts:
It is estimated that up to 95% of all PPI policies have been mis-sold
The potential compensation could exceed £30 Billion to customers
Nearly all UK Loan and Credit Card Companies have been fined
