As many as two million loan Payment Protection Insurance policies have been sold to people who may never be able to make a claim, according to research by Which? A third of consumers who have taken out a loan with payment protection insurance during the past five years may fall foul of at least one ‘significant exclusion’ that would prevent them from making a successful claim. People who are self-employed or on a fixed term job contract, for example, often aren’t covered by PPI. Nor are many people aged 65 and over, or people who might claim for absences relating to pre-existing medical conditions.
PPI is sold alongside loans, credit cards, finance agreements and mortgages to cover repayments if people are off work because of illness or unemployment.
If you are being offered a loan with insurance:
Options
Does the adviser make it clear that the insurance is optional (if this was the case)?
Exclusions
Does the adviser tell you about the ‘significant exclusions’ under the policy? For example, the exclusion that states you won’t be covered for any pre-existing medical condition?
Paying for insurance up front
If you take out a loan or finance agreement, does the adviser make it clear that you would have to pay for the insurance up front in a single payment?
Borrowing to pay for insurance
If you have to pay for the insurance as a single premium, does the adviser make it clear that the insurance cost will be added to the loan and you will be paying interest on it?
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Insurance expires before loan
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If your PPI policy expires before your loan or finance agreement does, you will be paying interest on insurance that is no longer in force. Does the adviser make this clear?
More information on PPI
PPI only pays out for a limited amount of time, usually 12 months, although some policies offer a 24-month payout period.
Credit and store card PPI often covers only the minimum amount that must be paid each month.
When sold alongside loans or finance agreements, PPI is sold as a ‘single premium policy’, which means a lump sum covering the cost of the insurance is added to the amount you have borrowed, so you end up paying interest on both the insurance premium and the loan.
PPI policies last for just five years, so if your loan or finance agreement is for longer than this, you’ll still be paying interest on a policy that has long since expired.
