PPI Insurance misselling

Q. What is Payment Protection Insurance?

A. Payment Protection Insurance (PPI) is a form of insurance taken out to cover the payment of a specific debt. A PPI policy is meant to cover repayments of the attached debt should the borrower fail to be able to meet the payments due to loss of income through redundancy, unemployment, illness or disability. A policy may typically pay out after a deferred period of 1, 2 or even 6 months, and continue to pay for up to a year should the loss of income remain. The most typical forms of PPI are Loan Payment Protection, where your loan payments or more commonly the interest part of the loan payments are met by the policy; Mortgage Payment Protection, where your mortgage payments are covered; and Store and Credit Card Payment Protection, where either your minimum payment or interest payment are covered. Both Accident, Sickness and Unemployment Insurance and Income Protection Insurance are often included under the PPI banner, although these are separate stand-alone insurance products meant to cover a range of debt commitments.

Q. What are the issues with Payment Protection Insurance?

A. Some PPI policies offered by lenders may be unsuitable to borrowers in certain circumstances. Policies may not be suitable for the self-employed if they only cover redundancy. Some are so full of exceptions and exclusions that borrowers are often unable to make a claim if the worst does happen.

PPI policies sold by credit card companies, banks and lenders can be overly expensive and are sometimes forced upon the borrower as part of the approval process or hidden within the debt repayment schedule. Debts may be increased by up to a third when added to PPI payments.