Should you consider payment protection insurance?
For the last couple of years payment protection insurance, known simply as PPI, has hit the financial headlines on a number of occasions, and this is because of a number of problems that regulators have picked up on with regards the both the sale and the effectiveness of this cover. PPI is a type of cover that is designed to cover your repayments on a loan or other form of finance for a set period of time in the event that you cannot meet the repayments due to sickness, accident, or redundancy. The idea behind PPI is that having your repayments covered for a specified period will enable you to get back on your feet or get another job without the added worry of how to pay your debts.
In the past trying to take out finance with any type of lender without being hounded relentlessly about taking out payment protection insurance was pretty much unheard of, but these days lenders and finance companies are far more careful about how they try and sell this cover. PPI is a costly form of cover, and for many people the cost added to the cost of the actual finance was not manageable. However, many lenders and finance companies have not paid any heed to affordability, but have been more interested in actually selling the policy.
The reason for this sudden caution from many lenders and finance companies these days is because of a clampdown from the financial regulator, the Financial Services Authority. For some time the FSA has been investigation the sale and effectiveness of PPI and came up with some rather worrying conclusions. Firstly, it emerged that many of the people that were being sold PPI – which is sold with all sorts of finance, such as credit cards, loans, catalogue accounts, etc – would not actually be able to claim on it because they would not have been eligible. For example, those that were self employed could not claim for redundancy. However, the FSA investigation found that the ins and outs of PPI were often never explained to the consumer.
It was also found that consumers were being misled with regards to PPI. Some lenders and firms were making out that the consumers would not get finance without taking PPI, which is not the case. Others made out that the PPI had to be taken through themselves, which again is not the case. Some even added PPI to the finance without the knowledge of the borrower, resulting in the borrower having to pay far more than was necessary for their borrowing because of insurance cover that they may not even have wanted.
Of course PPI can provide peace of mind for some people, but if you are thinking of taking out this sort of cover you should bear a few things in mind. Firstly make sure that you are eligible to claim under the terms of the policy. Also, remember that it is not compulsory and if you do want to take it out you can choose your own provider, so take the time to compare policies to find the best one for you. The FSA now has guidelines and assistance for those wishing to take out PPI on its website, so this could be a good starting point if you want to take out this cover.
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[...] Should you consider payment protection insurance? [...]
In answer to your question, yes, people should consider payment protection insurance, especially in this economic climate. There are much cheaper alternatives to single premium policies sold alongside loans, which can add a significant amount to the monthly repayments.