PPI: What is the alternative?
Chiara Cavaglieri rounds up other insurance policies that will protect your finances in adversity
Sunday 01 May 2011
British banks are still reeling from a legal ruling forcing them to reopen thousands of claims over the mis-selling of payment protection insurance (PPI) and potentially pay up to £4.5bn in compensation.
These policies were deemed too expensive and unsuitable for most customers by the Financial Services Authority, but are there any viable alternatives?
It would be churlish to tar all PPI policies with the same brush, and, in theory, there is nothing wrong with this type of insurance. But there have been significant issues with whom it is sold to and how much it can cost. PPI is usually sold alongside loans and credit cards, designed to help you meet those repayments in the event of an accident, sickness or unemployment.
"The big problem with PPI is not with the insurance itself but with the way it was sold. For example, in most instances, the self-employed could not claim," says Simon Webster of independent financial adviser (IFA) Facts & Figures. "Also, some companies were aggregating premiums for the full loan term into the loan capital, and then if someone paid the loan off after, say, two years, they pocket eight years' unused premiums."
Even worse, some people have been signed up to buy PPI without realising it, or asking for it, and others have been unaware that it is often much cheaper to buy standalone PPI rather than buy a policy from the firm that sells you the mortgage, loan or credit card.
Rules are now in place to improve PPI; for example, borrowers must be informed that the PPI is an optional add-on, not a prerequisite for getting the loan, and all PPI providers must show how many customers have made successful claims on their policies. With such a chequered past, however, the new rules will do little to persuade many consumers that a protection product is a good idea. Fortunately, there are a few useful alternatives.
Income protection insurance or permanent health insurance (PHI) is a good option, and typically pays out 50 to 60 per cent of your income if you can't work (although it does not automatically cover redundancy).
"Health and lifestyle questions are asked up front, so pre-existing medical conditions and occupation are accounted for in the premium. For this reason, income-protection policy payout rates are high," says Darren Pickersgill, protection insurance adviser at moneysupermarket.com.
The big benefit to income protection over PPI is flexibility. You decide when the cover starts, whether it's after one month or even a year of being unable to work. This enables you to fit the policy around any cover you have from your own savings or your employer. Additionally, unlike PPI, which is short term and pays out for only one or two years, income protection is paid out until you either return to work or retire. And, even if you claim and return to work, the policy stays in place so if you fall ill again, you can make further claims.
"It looks to protect your whole income rather than just one debt – so if you have credit card PPI and lose your job, then it will only pay for that specific debt. With income protection, you can decide which debts are highest in the list of priority," says Lucy Widenka of Which?, the consumer organisation.
Although not strictly an alternative to PPI, because it pays out a lump sum rather than a regular income to cover your costs while you're off work, critical illness insurance is worth consideration too, as additional protection if you can afford it. This is designed to help financially should you suffer from a serious illness such as cancer or a heart attack, but not accidents or conditions such as stress. It's often used to pay off a mortgage or other debts.
For some, the self-insurance route is a more reliable way to cover potential unemployment, so think about setting up your own savings safety net rather than relying on insurers to protect you. Experts recommend putting aside enough money to cover all your expenses, including your mortgage, utilities, bills and food for a minimum of three months, but preferably six.
This should also correspond to any existing protection which may provide more cover than you realise; first of all, see what sort of sick-pay scheme is in place at work. Your employer may offer a top-up to statutory sick pay (SSP) so find out exactly what they would pay you and for how long. Then check state benefits to see what you would be entitled to if you were unable to work because of illness, accident or disability. SSP is paid for up to 28 weeks, covered by your employer, working out to £81.60 per week at the current rate.
As of 31 January 2011, you can no longer make new claims for incapacity benefit, but employment and support allowance (ESA) can be claimed instead if you're still unable to work. This is initially worth up to £67.50 per week for a single person aged 25 and over. Then, after 13 weeks, there is an assessment on your capability to go back to work.
If your biggest concern is your mortgage, don't automatically dismiss mortgage payment protection insurance (MPPI) which is less controversial than plain PPI. "What we've found is that the sale tends to be much more of an advised sale. You get more of an in-depth conversation about your financial needs – a more holistic approach," says Ms Widenka.
As with PPI for personal loans and credit cards, you still need to take into account any existing protection you might have and watch out for any limitations or exclusions. Crucially, you should search around for a good price, remembering that you are under no obligation to buy it from the mortgage lender and can save substantial sums by comparing the whole market and getting some independent advice.
Darren Pickersgill, Moneysupermarket.com
"Following last week's High Court ruling on PPI, it is understandable that customers may have reservations about taking out a payment-protection product. However, having adequate cover in place to protect yourself from being out of pocket as a result of an accident, sickness or unemployment is an important consideration, especially if you have a mortgage and a family to take care of."
History tells investors to keep their nerve when headlines scream 'crisis'
Rain doesn't stop profits at Andy Murray's £600-a-night hotel Cromlix House
Five Questions On: GB Energy's new tariff
Santander's Kitti app aims to bring the good old cash kitty into the 21st century
Questions of Cash: 'I want a refund on my TV licence payments but they've turned my claim into a soap opera'
- 1 Windows 10: man updates PC, wakes up to find porn slideshow on repeat
- 2 The 'world's most beautiful vagina' has been debunked by science
- 3 John Green schools morning show hosts after awkward interview with Cara Delevingne
- 4 Bulletproof armadillo puts Texas man in hospital after shot bounces off hard shell
- 5 Doctors declare war on Jeremy Hunt over weekend working 'myths' amid plan for seven day NHS
Yvette Cooper: Our choice is years of Tory rule under Jeremy Corbyn – or a return to a Labour government
Is Britain really full up? Are migrants taking our jobs? Leading academic answers the most common anti-immigration claims
Calais Migrant Crisis: Deputy Mayor of Calais labels Cameron's use of 'swarm' as 'racist' and 'ignorant'
Labour leadership: New poll shows party is now even 'less electable' than under Ed Miliband
While we fixate on Calais, the Home Office is quietly deporting dozens of migrants on 'ghost flights'
Calais crisis: The seven claims made about the migrants - and the reality
iJobs Money & Business
£30000 - £35000 per annum: Recruitment Genius: This is an exciting opportunity...
£13000 - £15000 per annum: Recruitment Genius: Are you passionate about custom...
£22000 - £25000 per annum: Recruitment Genius: Main purpose: Under the directi...
£35000 - £37000 per annum + benefits : Ashdown Group: Contracts Manager - City...
Day In a Page
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
With five bedrooms, this spacious home offers beautiful gardens and modern interiors - set within the popular market town of Bingley.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
In the pretty market town of Bungay, this grade II-listed Mill House is arranged over four floors, offering four bedrooms and three reception areas.
This first-floor flat comes with two bedrooms, an impressive open-plan reception room and two lovely roof terraces.
This five-bedroom home comes with a range of outbuildings including a large barn which could be converted into a self-contained granny-flat or rental.
Moored at Taggs Island and reached via a pretty garden, this two-bedroom houseboat has a vaulted reception room and skylit garden studio - currently a beauty salon.
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
A contemporary house spread over three storeys, this three-bedroom detached home has large sliding doors that open out to the River Quaggy.
Moored in Chelsea's Cheyne Walk, this houseboat offers two double bedrooms and a teak deck that's ideal for al-fresco dining.
This former village bakery, dating back to the 17th century, is now a three-bedroom detached home just a few miles from the East Sussex coast.
On the picturesque Isle of Man, this four-bedroom character home has a ground-floor shop that's currently run as a newsagents and a flat that would make an ideal holiday let.
In a new collection of flats, this first-floor two-bedroom apartment offers ample entertaining space and a prime view of Furze Green from a private balcony.
This three-bedroom stone-built cottage currently trades as the village store with a restaurant in the annexe and family accommodation on the upper floors.
Previously two semi-detached properties, this five-bedroom home is spread over three floors with a large breakfast kitchen, orangery, office and gym on the second floor.
This five-bedroom home enjoys countryside views over the Blyth estuary to Southwold, offering flexible living space with a ground-floor annexe - ideal for use as a holiday let.
Close to the market town of Eye, this four-bedroom detached home offers a double-height living room which takes the place of the original, 19th-century, chapel nave.
Dating back to the 19th century, this four-bedroom home needs modernising. Spanning three storeys, the red-brick house has a fireplace, a small terrace and a cellar.
Just outside of Cambridge, this single-storey home offers three double bedrooms, a living room with vaulted timber ceiling and ladder steps that lead to a mezzanine study area.
This six-bedroom Georgian home is on three floors with open fireplaces, a two oven Aga, an annexe, and cottage gardens with outbuildings and a car barn.
A former coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, an attached office, kennels and an outbuilding that's currently used as a gym.
Located beside an impressive Victorian viaduct, this four-bedroom home has an open-plan living area that is glazed on two sides, with skylights and high ceilings.
A former furniture workshop, this three-bedroom home has high ceilings and painted brick walls, in a village setting only fifteen miles from the coast.
This five-bedroom stone townhouse features a pine staircase and an Inglenuk fireplace, double doors from the lounge give access to an enclosed courtyard.
This five-bedroom, detached home blends traditional and modern design; the sleek kitchen features a gas hob and oven set within an exposed chimney breast.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B or countryside retreat, subject to change of use permissions.
This Grade II-listed three-bedroom home is situated on a private road, just a short walk from the sandy beaches of Frinton-on-Sea.
Less than five miles from Malmesbury, this four-bedroom cottage comes with equestrian facilities and gardens that extend to approximately three acres.
Spanning three storeys, this late-Victorian five-bedroom farmhouse is a spacious family home with a modern interior and B&B potential.
With an original church arch, this triplex one-bedroom church conversion has a light, spacious, feel and comes with a secure off-street parking space.
This recently-refurbished three-bedroom home has bi-folding doors that lead out to a decked seating area - ideal for alfresco dining this summer.
Well-located for coastal walks and popular restaurants, this detached four-bedroom home offers views over farmland, to the Solent, the Purbecks and Bournemouth.
If you love high ceilings, school conversions like this one are bang on the money. This two-bedroom flat is minutes from Burgess Park and the foodie haven at Borough Market.
Set within a church conversion in Bermondsey, this two-bedroom maisonette combines existing features, such as original arches and brickwork, with a contemporary finish.
This four-bedroom Edwardian home offers a combination of original features and contemporary design after a renovation by the current owners.
This four-bedroom home offers a vaulted ceiling in a breakfast room that's ideal for summer entertaining with doors that open to the patio and garden.
On the market for the first time in more than 50 years, this six-bedroom home is a project with vast potential - spread over three floors of living space.
Surrounded by rolling countryside, this four-bedroom barn conversion comes with a self-contained, one-bedroom annexe that could serve as an office or a holiday let.
Located near Harrogate town centre, this five-bedroom Victorian terrace is arranged over three storeys while a current study serves as an optional sixth bedroom.
A ground-floor flat in a country house, located a mile from Sway; this two-bedroom home would make an ideal weekend retreat on the edge of the New Forest.
On a popular residential lane in Caterham on the Hill, this four-bedroom family home offers a secluded garden and a convenient location for local schools and public transport.
Just a short walk from Westerham green, this three-bedroom cottage has a light kitchen with exposed brickwork and double doors that lead to a south-facing garden.
In a prime spot opposite the River Thames, this one-bedroom flat has an 18sq ft reception room with glass doors that open out to a private terrace.
Set in the hills above Llanwrda Village, west Wales, this 18th-century three-bedroom farmhouse has holiday-let potential from a separate barn conversion and annexe.
This charming end-of-terrace townhouse is arranged over three floors, with two double bedrooms and a private courtyard garden located at the rear of the property.
Located in the University area, this semi-detached five-bedroom home is arranged over three floors - there's even a rear garden and off-road parking too.
Only a few minutes' drive from the charming town of Marlow, this two-bedroom home sits on the private riverside estate of Harleyford.
This detached four-bedroom home in Middleyard is arranged over two floors, with features that include a wood-burning stove and bespoke oak staircase.