PPI is a type of insurance policy which assists the borrower with repaying their loan if they are unable to work. Millions of PPI insurance policies have been taken out over the last several years.
PPI is now big news. This is because many people now realise that these policies were widely mis-sold. Endowment policies were widely mis-sold throughout the 1990s and now another type of policy is receiving the same sort of media attention due to the mis-sale of these policies. It appears that many lenders have not learned the lesson of past indiscretions.
Therefore, why is PPI a big item in the news? Well, the biggest issue with this policy is the expense and rigidity of the product. Single premium PPI is added on top of the original loan amount. What this means is that consumers are having to pay interest on top of the loan and the insurance policy.
When selling insurance to consumers, financial institutions should give them the full facts, especially if it influences their decision to buy the policy. One huge disadvantage with PPI is that it is so expensive. Instead of paying a regular monthly premium, customers are having to borrow additional money to take out this insurance. Furthermore, if the customer’s financial circumstances change and they pay off the loan, they may find themselves ouf of pocket when it comes to refunding the insurance premiums.
Some loans are longer than five years, which is normally the length of the PPI plan. So anyone taking out a ten year loan, for example, would only be covered by the insurance policy for the first five years of the loan. The consumer would then be left without cover for the rest of the loan period.
Another major concern with PPI is that it only pays out in certain circumstances. Some medical conditions are not included. Also, anyone who didn’t have a full time job will probably find it difficult to claim for unemployment.
However, the issue isn’t simply with the product but the way it was incorrectly sold to people. One issue that has cropped up time and time again is that customers were under the impression that unless their took the insurance policy out their loan application would be unsuccessful. Many people who find themselves in the situation where they need to borrow money are often at the mercy of lenders and feel pressurised into accepting whatever recommendation is put to them.
The FSA has stepped in to intervene regarding the sale of PPI. It wrote to major lenders in February 2009 asking them to withdraw the sale of the product as soon as possible and no later than 29 May 2009. The regulator is focussed on how the product is sold and whether the sales process is fair to consumers.
More recently, the FSA has increased its role as regulator. It has issued new guidance regarding the way lenders are treating complaints about PPI and has also ordered a review of previously rejected complaints.
Several lenders have already been fined by the FSA due to the way they have treated their customers. Now other financial institutions are acutely aware of the need to monitor their sales process.
An alternative to single premium PPI is to purchase one that has a fixed monthly payment. These policies tend to have less rigid conditions for making a claim and are also not as dear. They are not added to the cost of the loan so the customer could easily cancel the policy at any time without losing out financially. This beng said, it is worth checking the policy documents to see what is and what isn’t covered.
So what does someone need to do if they discover they have been missold PPI? To start with it’s worth seeing whether your policy was sold before 14 January 2005 or after this date. Anything sold before this date is classed as an unregulated sale and will be subject to different rules. What this means to the consumer is that they need to be aware when making a complaint whether the sale of the policy is classed as an “advised” sale or a “non-advised” sale.
Once this has been established, the consumer will then need to ensure that they have the documentary evidence relating to their claim. The most important details to have are the loan agreement number, the date of sale of the policy, the term of the loan and the total cost of the insurance policy.
A complaint will need to be carefully drafted based on the consumer’s personal circumstances at the time of sale. It can also be helpful to have a basic understanding of the Statute of Limitations Act, the Misrepresentations Act and the ICOBS provisions as they relate to payment protection contracts.
Customers need to understand that a complaint may not go the way they planned it. There are rules governing what constitutes a final decision and there may be options which allow the consumer to appeal against the decision. In some circumstances, complaints can be appealed through the Financial Ombudsman Service, which itself has different levels of appeals.
To simplify the whole process, a consumer can contact a claims company who can handle their mis sold payment protection claim on their behalf. A claims company should have the right skills and knowledge to deal with PPI complaints effectively on behalf of consumers. Some people do not have the time and inclination to manage this process alone, so letting a claims company do it for them could prove to be a good choice.
Related posts:
- Insurance cover for contractors If, like me, you have been self employed you have...
- Protectiion For Your Office One of the costs thats easy to overlook when you...
- What amount of insurance is the correct amount? This is the big question if you are about to...
- What to look for with business insurance The obvious answer is yes. You will need both general...
Related posts brought to you by Yet Another Related Posts Plugin.
0 Comments on “Payment protection insurance issues explained”
Leave a Comment