Bad Credit Gone

If you’ve ever taken out a loan, mortgage, credit card or store card, or bought something on credit, then the chances are you were sold Payment Protection Insurance (PPI) at the same time.  The idea is that PPI covers your debt repayments if you can’t work because you become ill or have an accident or if you are made redundant.

But beware!  Most policies won’t cover you for conditions such as back pain or stress and if you’re on a short-term contract or self-employed, you may not be covered for any redundancy claim. PPI linked to mortgages, credit cards or store cards usually pays out for a limited time only. On some credit card PPI, the insurance covers only the minimum monthly payment, meaning your balance may never reduce!Most PPI policies only last for five years, so if your loan or finance agreement term lasts for longer than this, you are paying interest on insurance that has long since expired! That’s like paying for office insurance even though you moved out and are no longer working there.

Aside from not being as comprehensive as you thought, PPI is also expensive!Adding PPI to a £7,500 loan over five years could cost an additional £2000-£3000.  According to a recent Citizens Advice Bureau survey, Payment Protection Insurance can add 20% or more to the cost of your credit agreement and since it’s estimated that there are over 20 million PPI policies in force throughout the UK, that’s generating almost £5 billion worth of premium income for the insurers!

That same CAB survey found that 85% of people who had attempted to claim on their policies had been refused.  Worse still, in June 2008, the Competition Commission found that average insurance payout ratios were:  Car Insurance: 78%, Home Insurance: 54%, Mortgage PPI:  barely 28%, Personal Loan PPI: a depressing 15% and Credit Card PPI:  a miserable 11%!

So how can you tell if you’ve been mis-sold a PPI plan and what can you do about it?The main difference between sales before and after regulation is that all sales before regulation were ‘non-advised’ because the ‘advised’ regime didn’t start until regulation was introduced.

But if you were sold PPI before 14th January 2005, most firms or advisers would be still covered by a code of practice set by the Association of British Insurers (ABI), the General insurance Standards Council (GISC) or the Finance and Leasing Association (FLA).  All three codes of practice required advisers to provide information at the time the insurance was taken out to help you decide if the policy was suitable for you  Even then, advisers and firms were required to cover the same points as they must cover  today according to the current rules.

There’s a good chance you were indeed mis-sold (and can therefore recover your hard earned cash) if you can answer ‘NO’ to one or more of these questions:

•    If the insurance was optional, was that made clear to you?
•    Did the adviser infrom you of any significant exclusions under the policy (like pre-existing medical conditions) ?
•    Did the adviser make it clear that you would have to pay for the insurance up front in a single payment and did you know you would be paying interest on it?
•    If your loan or finance agreement was for longer than five years, did the adviser tell you that the insurance would expire before you had finished paying for your loan or finance agreement?
•    Did the adviser tell you that you would continue to pay interest on the insurance premium, even after the insurance had expired?

Make sure you always consult experts before you take out any form of personal or businesses insurance.