Payment Protection Insurance (PPI) is simply a disgrace.
It’s probably the biggest financial rip-off of the last decade. And as the Citizens Advice Bureau remarks -
"it is more about providing an another source of mega profits for the financial industry than about protecting consumers".
It’s therefore no surprise the financial regulator, the FSA have started to levy big fines on many of the household named banks and lenders.
What Is PPI
It is an insurance policy that is supposed to protect loan/credit card/mortgage payments if you are unable to work because of illness or injury etc. On paper it looks like a sound proposal but the problem is fourfold -
- Whereas the financial industry says 80% of policies pay up (if your job is lost, injury etc) the Citizens Advice Bureau put this figure nearer to 15%, therefore most policies are worthless
- PPI is incredibly expensive AND the cost is often added to the overall loan. For example, if you were to borrow £3,000 in the form of a loan the total monthly PPI payments might add up to £500, this is added to the overall loan and interest charged on £3,500
- PPI is sold without making it clear to customers exactly what they're buying, and whether the cover is suitable for their circumstances. For example, if you’re self-employed PPI won’t cover you but that hasn’t stopped the banks and lenders from selling it to self-employed people
- Many lenders are refusing loans unless the customer also buys the expensive PPI. This is often nothing more than a marketing trick, offer a cheap headline loan but sell high priced PPI on top
Lack Of Education Means Consumers Are Getting Ripped Off
The banks can make so much money with PPI because they know full well most of their customers don't understand it, and more importantly how expensive it is. But if you do your research and understand how products such as PPI work then you'll be one step ahead of the average customer.
What If You Need PPI
This is where it gets interesting because some people do want and need an insurance policy for their loan. If so there is a great alternative available.
What you need is a stand-alone PPI policy which is available from independent brokers such as BritishProtection.com. These policies can be as much as 50% cheaper than the ones sold by the loan provider.
Start to view the loan and the loan insurance as two separate products. Think of it this way, if you have a car you might buy car insurance from the ABC Insurance company this year. But next year switch to a policy offered by the XYZ Insurance company because they offer a better deal.
Whichever insurance company you do business with your car is insured.
So if you borrow £5,000 from a bank and need insurance you can shop around for the best deal – you don’t have to buy the PPI from the bank that sold you the loan. This is the secret that most people don’t know and of course the banks keep[ very quiet about.
Summary
PPI is fantastic business for the banks with industry insiders suggesting that as much as 20% of the sector’s profits come from this one product. But don't fall for the tricks played by the banks, instead follow these simple guidelines -
- Ask yourself if you really need PPI
- Get all possible deals in breakdown form, the amount of the loan, repayment period, APR, PPI element and the overall monthly cost
- Work out what the loan repayment would be per month and per year if PPI was not included (you may well be shocked)
- Read that small print and make sure your job is covered, for example PPI doesn't cover the self-employed
- Check out how much a PPI policy costs from the likes of BritishProtection.com
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