March 20, 2013

The Shortcomings of Payment Protection Insurance

Payment Protection Insurance or PPI is a popular insurance product in the UK, and it is meant to insure credit repayment, should the borrower become unable to make repayments due to illness, injury, unemployment or even death. In the absence of life insurance, income protection insurance or mortgage insurance, PPI proves to be extremely useful. It guards against the uncertainty of income loss, which would have great credit repercussions, should a person be making repayments on different credit extensions. With a PPI offering cover for a period ranging from 12 to 24 months, enough time is accorded for the borrower to find an alternative source of income, so that they can continue servicing their debts.

Despite the many benefits conveyed by PPI, it has many shortcomings. The biggest is perhaps the high number of rejected claims. The claim approval rate is surprisingly low and part of the reason for this is that customers who buy into the policy are not fully aware as to what the policy offers, what the eligibility conditions are, and if the policy is befitting to their financial situation.

Eligibility for PPI

Payment protection Insurance is not offered to just any kind of consumer. At the time of buying the policy, you should be in permanent employment. This is to say that if you are working a short term contract, or working part-time, you will not be eligible as your income is not guaranteed, in either case. If you are self-employed you are not eligible as well, as your income is predisposed to fluctuations, which may or may not affect your ability to service your debts. As such, you cannot buy the policy. An age limit of 18 on the lower side of the bracket does apply. Usually, younger policy buyers enjoy better policy terms, as they are less likely to make a claim, unlike older people who show a higher frequency of filing claims.

Mis-sold PPI

Payment protection insurance is one of the most mis-sold insurance products in the market. Before an insurance product is sold to a customer, they should be made fully aware of it. This way, they are given the opportunity to dissect the policy and judge whether it is right for them or not. But since PPI is sold with other credit products, most notably credit card agreements, a lot of consumers are unaware of it. This has generated a lot of controversy as the number of policy holders who are unaware that they have PPI is astronomical. The issue has since come to light, and banks and other credit institutions are compensating for their misdirection.

The process of making a claim is not difficult, and can be done individually. However, should the process appear complex, there are solicitors and claims management companies that can undertake the task for you, for a fee. For the companies, the fee attracted is usually 25% of the total value of the claim. Only those who were mis-sold the policy, qualify. Those who were unemployed, retired, or studying at the time they took the policy are eligible. If you accepted the policy without the details of the policy being discussed or you were compelled to accept it together with your loan product, then the PPI was mis-sold to you, and you can therefore make a claim.

The writer Samuel Jones, realizes that PPI reclaim cases have escalated, with millions getting back the entire sum that was used to buy the policy, including any interest charges that may have applied. It comes as a great reprieve for consumers who feel that the banks exploited their desire for credit by enforcing an insurance product and failing to divulge information about it.

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