Payment Protection Insurance FAQ's
What Is Payment Protection Insurance? (PPI)
Payment Protection Insurance, or PPI, is a type of insurance offered on a number of financial products. This is typically offered on loan agreements and other forms of money lending. It is designed to meet the repayments for these products if the borrower is unable to do so, due to illness or lost employment.
In these situations, the insurance will cover the repayments to prevent the individual from falling into debt through missed payments.
The insurance is charged at a fee on-top of the loan repayments, meaning that borrowers pay a higher repayment value each month in order to receive the protection.
The insurance policy will work in one of a few ways when obtained by customers. This will see customers given the choice of whether they want their PPI payment to cover the full payment due or a smaller percentage of it instead.
What payments are covered by PPI?
Repayments for the following products can all be covered by PPI:
- Mortgage repayments
- Loan repayments – irrespective of value
- Store card repayments
- Credit card repayments
- Any form of credit or money lending agreement which requires repayments
Is PPI compulsory with these products?
Perhaps one of the biggest areas of controversy surrounding PPI is whether it is compulsory. As with a number of products such as this, the insurance does not have to be purchased by customers and is purely voluntary. However, a number of cases have arisen over previous years where individuals have found they have been mis-sold the policies.
In some cases, the insurance was added to loan agreements and repayments without the customer’s knowledge – seeing them paying for a service which they were not aware of. Alongside this, a number of individuals found that they were not entitled to receive PPI despite the fact it had been added to their policy.
For example, individuals who were unemployed or who had a pre-existing health issue would not have been considered eligible for the insurance. This means that even if they had paid for the insurance, it would not have covered their repayments should they have been unable to meet them.
The fall-out generated by this revelation, which was sparked following a complaint lodged by the Citizens Advice Bureau in 2006, has seen some people reclaim large sums of money. Collective payouts were expected to total £7billion but this figure continues to increase and currently stands at as much as £9.3billion, and continues to rise as more evidence of the misspelling continues to unfold.
Understanding what PPI is and how it might have been mis-sold is therefore advisable for anyone who has taken a financial product, such as a loan or mortgage, over the past decade.
Reclaiming for mis-sold PPI could give people the chance to recoup relatively large sums of money which was unfairly taken from them previously.