Money Blog: PPI: The Rip-Off That Benefits You
You & Your Money
Best Buys
Tools
Sky News
Home » Money Blog » Money Matters » PPI: The Rip-Off That Benefits You
PPI: The Rip-Off That Benefits You
By Nic Cicutti
Jun 10, 03:39 PM
The hot topic dominating the financial headlines right now is the way insurers and lenders have been overcharging punters to the tune of up to £1.4bn a year for so-called “payment protection insurance”, or PPI.
For those, like myself, who has been trying to expose what insurers and lenders have been getting up to for many years, today’s report by the Competition Commission is hugely welcome.
The reality is that most PPI cover is a rip-off on an epic scale.
PPI is the kind of cover that people end up with when they take out a personal loan or a credit card. If you fall ill or lose your job, it’s meant to make the loan payments on your behalf until you are well again.
But there are problems.
First, this kind of cover is almost always a so-called “single premium policy”. If you take one out, it means that the total cost of the policy is added to your loan at the outset.
By the time you’ve added up all the charges in a policy, it will often add up to 25% to the total cost of a loan, sometimes much more. So while you were thinking: “Gosh, this credit sounds cheap”, the lender is laughing at you.
Second, what many borrowers don’t understand is that if the loan is repaid early, they often still have to pay off whatever is owed on the single premium insurance, even though it’s no longer needed.
Third, many lenders’ polices are set up so that if you fall ill and claim on the policy, the small print will ensure you get turned down. In fact, the claims experience on PPI policies is among the worst, in terms of payouts, of any type of insurance in the market.
The irony is that in some ways the Competition Commission report will make things worse for some of us.
That’s because for those who needed a loan and were canny enough, it was always easy to refuse PPI cover from our lenders and – if we really needed it – shop around for much better policies.
Because lenders used the profits they made on their PPI sales to cut the interest charged on loans, we benefited from ultra-cheap credit.
All of that will now come to an end: If PPI sales are banned or much more tightly controlled, get ready for loan charges to rise by up to 20% or more, especially for those with poor credit histories.
Personally, I think it’s the right way to go. I’d much rather any product charges were explicit and not hidden. But you may have a different view. What do you think?
User Comments
sana 20 December 2008, 12:05
we already have payment protection insurance with legal&general which covers our morgage and other household bills but what we failed to understand at the time and were’nt told clearly was that it only covers a period of 12 months ;also when taking out a loan ppi was added as a “if we did’nt take the cover we would’nt get loan” people who are desperate have no choice but to accept it the way it is that to me is a situation were vulnerable people are bullyed in to taking a ppi out. the reality is banks are making money out of vulnerable people may it be bank charges or ppi or somrrthing else there is only one winner.
stoppo 25 November 2008, 05:24
This is not a rip off !! Let’s be crystal clear with our terminology on this subject,and other so called rip offs .If you deliberately mislead someone ,and it costs them -this is theft, and should (or presumably does) carry the same penalty as theft.
please phone old bill instead of blogging
Daniel 13 November 2008, 11:27
I have been looking into the mis-selling of the policies for over two years now. I have been involved in several forums on this in which several of the large Banks have been present. It would seem that they are very worried about the number of policies that may have been mis-sold. I will be happy to offer my advise should anybody have any genuine questions regarding this.
Jay 20 October 2008, 19:20
I fell ill overseas whilst on holiday and was unable to travel back for 10 weeks because of my condition. Abby refused to cover the period whilst abroad.
tony 8 October 2008, 08:26
my financial adviser has advised me to buy isa’s next year would this be a good idea?
Emma 7 October 2008, 18:42
I took a PPI out on a loan with my bank and fortuatly they have been fantastic in paying out to cover my loan since I fell ill 20months ago.
They even told me that I was entitled to a pay out out for any admittance to hospital and always have payed promptly.
If I did not have this cover I wouldn’t have been able to pay the loan, so its made life a little less stressfull.
Janet 16 September 2008, 20:51
We took out an income protection in connection with our mortgage, only to find out that it does not cover unemployment. The government will not help unless you have been unemployed for nine months, but less face it in this day and age who can be unemployed for that long. We are now left to find the full mortgage payment ourselves.
Denise 12 September 2008, 15:13
Myself and my husband took out a loan about 18 mths ago and the company said we had to have ppi is this correct? if not how do we go about getting the money back please help.
justin 27 August 2008, 15:54
when i claimed on my ppi i was told i wouldnt get a payout for the first 30 days and then when i went back to work on the 29th day after my previous payout they said i was’nt entitled to anymore because they make a payment every 30 days .Now it maybe just me or is that the biggest con going to lose out on a payment because of 1 day.Then i tried to cancel the ppi and they said i could’nt because ive already claimed on it
dod 13 June 2008, 10:55
People havent got time to look into these things themselves – its not a good idea if most people are kept in the dark, even if a canny few can benefit.
Most Popular Talking Points
- Is the Alliance and Leicester takeover bad news for consumers?
- Should We Support The Fuel Protests?
- PPI: The Rip-Off That Benefits You
