Payment Protection Insurance: A Comprehensive Overview

Payment Protection Insurance (PPI) has been a widely debated topic in the financial world for many years. It is typically sold alongside loans, credit cards, and mortgages, providing protection for borrowers who may be unable to make repayments due to unforeseen circumstances such as illness, redundancy, or death.

In this article, we will delve into the basics of Payment Protection Insurance, its advantages and disadvantages, the current state of the PPI industry, and the process of making a PPI claim. We will also address some common misconceptions and frequently asked questions regarding PPI.

What is Payment Protection Insurance?

Payment Protection Insurance, commonly referred to as PPI, is an insurance policy designed to protect borrowers from defaulting on their loan, credit card or mortgage payments should they fall into financial hardship. In essence, PPI is meant to cover the borrower’s monthly repayments for a certain period of time in case they become unable to work due to illness, redundancy, or other unforeseen circumstances.

PPI was originally sold as a safety net for borrowers; however, it quickly became apparent that it was a controversial product with numerous issues, including mis-selling, high costs, and exclusions that left many borrowers without cover when they needed it most.

How does PPI work?

When a borrower takes out a loan, credit card or mortgage, they are offered PPI by the lender who arranges the policy on their behalf. In exchange for a monthly premium, PPI covers the borrower’s repayments if they are unable to work due to illness, redundancy, or other unforeseen circumstances.

If the borrower becomes ill or loses their job, they can make a claim on their PPI policy. If the claim is accepted, the insurance company will make the repayments on their behalf for a certain period of time.

What are the advantages and disadvantages of PPI?

Advantages of PPI include peace of mind for borrowers, as they know they will be able to continue making their repayments if they fall into financial hardship. It can also be helpful for self-employed individuals who are not entitled to sickness benefits from their employer.

Disadvantages of PPI include its high cost, often accounting for a significant proportion of the monthly repayment, as well as the numerous exclusions that could leave borrowers without cover when they need it most. PPI has also been widely mis-sold, with many borrowers not realising they were paying for the product or not being eligible for it at all.

The Current State of the PPI Industry

Since 2011, the PPI industry has been the subject of numerous investigations and legal cases due to widespread mis-selling. The Financial Conduct Authority (FCA) has stated that over £38 billion has been paid out in compensation for mis-sold PPI policies.

In August 2019, the PPI deadline for making a claim passed, and now, no further claims can be made. However, the impact of PPI mis-selling is still prevalent, and many borrowers may still have a valid claim.

Can I still make a PPI claim?

If you believe you have a valid PPI claim, you can still pursue it through the Financial Ombudsman Service (FOS). However, the likelihood of success may be lower now that the deadline has passed.

It is essential to note that if you choose to claim through a claims management company or solicitor, they will typically charge a fee of up to 30% of the compensation awarded. You can submit a claim yourself for free through the FOS, and there are numerous guides and tools available to assist you.

FAQ: Frequently Asked Questions about PPI

Conclusion

Payment Protection Insurance is a valuable product for borrowers who may be at risk of falling into financial hardship. However, its widespread mis-selling, high costs, and numerous exclusions have left many borrowers without cover when they need it most.

Although the PPI deadline has passed, those who believe they have a valid claim can still pursue it through the Financial Ombudsman Service. It is essential to do your research and understand the process to ensure you receive the compensation you deserve without falling victim to claims management companies or solicitors.