Some unscrupulous lenders are still offering payment protection insurance (PPI) policies that are entirely unsuitable for borrowers needs, despite an industry wide crackdown on mis-selling.
Worse, borrowers may have had expensive PPI automatically tacked onto their loan entirely without their knowledge.
The following guide is designed to clear up any confusion over PPI, help you identify when a policy has been mis-sold, and explain what to do if you suspect you’ve been a victim.
Apply for an independent PPI policy here
What exactly is PPI?
Whenever you borrow money – be it for a mortgage, personal loan or credit card – you can opt to purchase insurance that will meet your repayments should you become unable to pay for whatever reason.
This is known as PPI, and it has become one of the most controversial financial products in recent years. Generally speaking the product itself is a good one, the problems surrounding it have to do with the way it was – and still is - sold.
You see, PPI can be very expensive and is thus a veritable cash cow for those who sell it, and the temptation to shift as many policies by whatever means necessary has proved too great for some.
The result as we mentioned earlier is customers purchasing policies that they will never use, never needed in the first place, or could have got far cheaper elsewhere. A possible indication of just how rife mis-selling has become is the fact that just 20% of the £5 billion collected from PPI premiums annually is paid out in claims, compared with 82% for car insurance and 54% for home insurance.
Click here for a standalone PPI policy
How to check if you were mis-sold PPI
Like any insurance policy, PPI comes riddled with exclusions in the fine print. So just because you are unable to make a claim it doesn’t mean your policy was mis-sold.
What’s important is that the seller explicitly explained the terms and conditions to you, as any lack of information could make the sale unfair. For those who purchase PPI online, note that the onus is on you to read these thoroughly yourself.
Put simply, a policy is mis-sold when the customer is sold cover when they have little or no chance of claiming. The following is a list of the most common scenarios:
Apply for an independent PPI policy here
Companies cannot force you to take PPI
If you were told the insurance was compulsory, chances are it was mis-sold. While a lender can insist that you have PPI, it can’t force you to take it out with them. Incidentally this is something you should never do, as standalone PPI policies are up to five times cheaper.
If you weren’t employed – be it unemployed, self-employed or retired – at the time of taking out the insurance, and the seller did not explain this would make it impossible to claim, then the policy was mis-sold.
Medical conditions are another clear cut exclusion that would make it impossible for you to make a valid claim, so again it was mis-sold if this wasn’t explained to you.
Click here for a standalone PPI policy
Single Premium PPI policyholders may get refunds
If you were sold a ’single premium’ policy (where the whole cost of the loan is paid for up front with money that is also borrowed at the same interest rate as the loan) and you cancelled or repaid the loan early, but were unable to cancel the PPI, then you can claim a refund.
If you bought PPI to cover a long term loan there is a chance that the insurance will run out before the loan is repaid. Most PPI policies will only run for five years, so if your loan term is longer than this the seller should have explained this limitation.
The lender should also explain that PPI is only applicable to people aged over 18 but under 65.
Finally, a recent ruling by the FSA stated that, as of July 2007, the customer mustn’t have to opt out of PPI when applying for a loan (loan quotes must be supplied without PPI included). So any policy sold thereafter where the customer didn’t actively select PPI but was given it anyway was mis-sold.
Apply for an independent PPI policy here
Reclaiming your PPI premiums
When making a claim, your first step should be to write a letter to the firm who sold you the policy, explaining why you feel it was mis-sold and that you want to be refunded (you don’t need to specify the amount – the lender will do this).
If the firm agrees that you were mis-sold the insurance, you should get back all the premiums you have paid, with interest added at 8%.
If they refuse your request, don’t be deterred – companies are loathe to hand out money, and may just be testing your resilience. Follow up with a second letter, enclosing the first and explaining you are still unhappy and that your next course of action will be to contact the Ombudsman if it is not suitably resolved in the next 14 days.
If they are still uncooperative, make sure you reiterate why your feel the policy was mis-sold to when writing to the Ombudsman.
Download a letter template here
