Mis-sold PPI

Do you think that you may have been mis-sold PPI insurance? Up to 50% of people in the UK were mis-sold!

Are you considering making a claim for compensation?

Payment Protection Insurance – The Facts

What is PPI: Payment Protection Insurance (PPI) was an insurance policy frequently sold alongside loans, on the pretext of giving peace of mind, by ostensibly covering loan payments in the event that the insured was unable to work because of illness or redundancy.

Is there anything wrong with income protection policies ?

In principal these can be sensible policies, as long as

• It doesn’t duplicate cover you already have (e.g. through employment contract/benefits or other policies)
• It can be cancelled at any time without penalty
• You are eligible to make a claim
• It is fairly priced
• It has not been loan-funded
• The cost of the policy is a small percentage of the benefits that can be obtained if a claim is to be made.
• The term of cover matches the term of the loan it is insuring.

What types of PPI policies can you get ?

Monthly: You can either pay a small monthly premium for as long as you want. This can be terminated at short notice without cost or penalty. Whilst this type of policy has been widely available for some considerable time, very few policies are offered on this basis, even by companies that have both types of product in their portfolio.
Single Premium, Loan-funded: The vast majority of policies are sold as single premium policies. The premium is usually calculated as a proportion of the loan, typically 30%. So, for example, the PPI premium to meet the monthly payments of a £10,000 loan would be around £3,000, if paid up-front. What normally happens is that the premium is added to you original loan, so you end up borrowing £13,000 over several years, generally at a high interest rate.

What is so bad about Single premium, loan-funded PPI ?

Firstly, the cover is usually limited to a period of 3 or 5 years. So, of you are taking a 10 year loan out, you can only make a claim within that 3/5 year period, even though you will still be paying off the PPI premium over the duration of the entire loan, i.e. 10 years in this example.

Secondly, it is very expensive. This is because the premiums are heavily inflated, making it incredibly profitable for those selling it. Over 50% of what you pay goes in sales commissions to the sales people/organisation (e.g. bank/lender) who are promoting it.

Thirdly, the cost of the benefits that can be claimed under the policy are generally similar to the cost of premiums you pay out. In other words, it would have been better for you to have put the money to one side and drawn upon if you needed it (e.g. if you were unable to work if sick or made redundant,) re-utilising the money after the loan term, if you hadn’t needed to draw upon it.

What are the other problems with PPI ?:

• Most policies stipulate a maximum amount of time over which claims can be made, such as a total of 24 months in a 5 year period. So, if you are long term unemployed, or long term sick, you cannot carry on claiming once this maximum period has elapsed. There are often “waiting” periods before you can start claiming against the policy.
• Many employment contracts provide benefits for sickness, such as 6 months full pay, then half-pay for another 6 months. You could therefore be paying for expensive insurance that covers benefits you are already contractually entitled to.
• Policies contain extensive exclusion clauses, so complaints such as backaches or stress are not usually covered. Pre-existing conditions are not normally covered either. Related illnesses is another problematic area. If, for example, someone periodically suffered from angina and then went off sick following a heart attack, it is unlikely that the person could make a claim against their PPI policy.

When is the sale a “mis-sale” ?

A mis-sale occurs when one or more of the following conditions are met:

• You weren’t advised of the true cost of the policy
• The policy term was shorter than the term of the loan it was insuring
• The exclusion clauses weren’t fully explained
• Because of your circumstances, you would never be able to claim (e.g. you were over 65, or weren’t employed full time)
• If you were self-employed, it wasn’t explained to you that to make a claim you would have to claim benefits which would effectively mean that you would have to close your business down
• You weren’t advised that a significant commission was being received by the salesman
• You weren’t told that there were alternative products available (such as monthly policies) or the costs of these alternatives
• The cost of the policy was similar to the total benefits under the policy if you made a claim.
• You were told that you needed to take out the PPI cover if you wanted to have your loan application accepted
• You were told that the loan was only available with PPI
• It was included with loan and you didn’t even know you had it.

What is the extent of the mis-selling ?

A number of official reports have been issued highlighting the mis-selling practices endemic within the UK’s lending institutions, including high street banks, mortgage lenders and other specialist lenders.

The Citizens Advice Bureau and Which ? have described PPI sales as a widespread racket.

• Do I have a good claim?