They get you to buy cover, then leave you naked
It's expensive and claims often get rejected. But still we take out insurance for our loans
Sunday 12 February 2006
Is payment protection insurance (PPI), one of the most reviled financial products on the high street, ever worth the money?
The cover is sold with personal loans, credit cards and mortgages. It protects borrowers who fear losing their income through accident, sickness or unemployment and being unable to make their repayments. Heavily criticised, it has now come under fresh fire for its cost and its exclusions.
Borrowers are at risk of wasting as much as £350m a year on PPI policies that don't then pay out, according to a report from financial researcher Defaqto.
Around one in six consumer claims are rejected, while just a third of online loan providers and 60 per cent of credit card firms let customers see the full terms and conditions of the insurance policy before they apply for credit, it says.
Defaqto's warning is the latest in a long line of salvoes. PPI is currently the subject of an investigation by the Office of Fair Trading - following a super-complaint lodged in September last year by Citizens Advice - and has also been scrutinised by the Competition Commission as part of a separate inquiry into store cards. It is also being monitored by the City regulator, the Financial Services Authority.
Yet still some 20 million policies have been sold, says the British Insurance Brokers' Association (Biba), generating £5bn in revenue a year for the banks, building societies and credit card firms that sell PPI.
Defaqto's research backs last year's report, entitled Protection Racket, from Citizens Advice. This argued that PPI was more about producing a profit for the financial industry than protecting customers. It said policies were often mis-sold to people who couldn't possibly claim on them, and riddled with exclusions.
The Defaqto report highlights how only minimal, if any, questions are asked about the health and employment status of consumers when lenders offer to sell them a PPI policy.
This is a big issue, as some of the most common ailments that stop people working - a bad back, stress and mental health problems - are often excluded. Many policies also impose arbitrary age limits and rule out pre-existing medical conditions. Worryingly, buyers often aren't aware of these exclusions - either because the policy hasn't been properly explained or they've missed the details in the small print.
Defaqto is now calling on the industry to publish statistics for claims acceptance and rejection rates, and to give the most common reasons for refusals.
In another part of the insurance industry - that selling critical illness (CI) cover - Standard Life and Scottish Widows have just started to publish claims details to help consumers understand why these may not always be met.
Protection broker LifeSearch has long supported this reform and backs such a move with PPI claims. "It's not to publish a league table [for consumers] - it's to improve understanding," says spokesman Kevin Carr.
Mike Naylor at the consumer body Which? says publication of claims has been a "good thing" in the case of CI and that Which? broadly supports a similar move for PPI. "But these statistics would need to be accurate and reliable - and it is important that claims are classified in the same way to ensure a level playing field."
Statistics would need to be monitored by an independent body, he adds.
Philippa Gee from independent financial adviser (IFA) Torquil Clark thinks the idea is unlikely to get off the ground. "It's sensitive company information, though it would be very good for consumers."
Anyone about to take out a loan, credit card or mortgage will usually be offered PPI at some stage of the process. But don't buy the cover unless you've considered all the alternatives - some of which may already be in place for you. Short periods of illness, say, may be covered by company sickness schemes, and you may have other insurance products such as critical illness cover or income protection.
"PPI is not the all-encompassing policy that people think it is," stresses Ms Gee. "It's more for plugging the gaps as part of a wider package of [general] protection for yourself."
However, if you can't rely on anything other than long-term state benefits should you be off work for the long term, consider a cheaper standalone PPI policy instead of simply accepting one from your bank or lender (see the table below).
You can buy these from providers such as British Insurance or Paymentcare. You simply get a loan without PPI from a high-street lender and then buy the cheap bolt-on cover as a separate product.
Simon Burgess, managing director of British-insurance.com, says its stand- alone PPI policy is "superior" as it pays out from day one - as opposed to the usual 60-day excess period enforced by many providers - and can be cancelled at any time, unlike PPI from high-street lenders.
It generally has the same exclusions but costs less as "we operate online and take only 20 per cent in commission", says Mr Burgess.
If you do decide to take out PPI with a major lender, shop around here too because the deals can vary widely. Ask sales staff to break down the costs.
Despite the criticisms, many argue that there is still a case for PPI.
Ms Gee says there's nothing wrong with the concept but urges consumers to check all the details and not buy the cover without considering alternatives.
Which? says that while PPI for your mortgage can be a cost-effective way of protecting your "number one priority" - ie, your house - it's usually not worth taking out PPI for loans or credit cards. This is because it's expensive and the number of successful claims is low.
Bargain Hunter: Exclusive discount on a SmartGlider - a self-balancing electric scooter
My Tinder date asked for a refund when I declined a second meet up
10 tips for taking out a personal loan
Number of parents moving to their desired school catchment area is increasing, according to Santander research
Bank-beating exchange rates on your international payments
- 1 Huawei Mate S and Huawei Watch: new products take on iPhone 6 Plus and Apple Watch
- 2 More than 11,000 Icelanders offer to house Syrian refugees to help European crisis
- 3 If these extraordinarily powerful images of a dead Syrian child washed up on a beach don't change Europe's attitude to refugees, what will?
- 4 Senior British politicians tell David Cameron: When dead children are being washed up on beaches – it's time to act
- 5 German police forced to ask public to stop bringing donations for refugees arriving by train
Climate change: 2015 will be the hottest year on record 'by a mile', experts say
Senior British politicians tell David Cameron: When dead children are being washed up on beaches – it's time to act
Jeremy Corbyn calls Osama bin Laden's killing a 'tragedy' - but was it taken out of context?
If these extraordinarily powerful images of a dead Syrian child washed up on a beach don't change Europe's attitude to refugees, what will?
If you're not already angry about the refugee crisis, here's a history lesson to remind you why you really should be
Theresa May says migrants should be banned from entering the UK unless they have jobs lined up
iJobs Money & Business
£20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...
£20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...
£14000 - £16000 per annum: Recruitment Genius: This company was established in...
£20000 - £25000 per annum + OTE 40k: SThree: SThree are a global FTSE 250 busi...
Day In a Page
With four bedrooms, this spacious maisonette in a mid-terrace period-style house in Holland Road is well-maintained and offers high ceilings and period features.
The terraces of this two-bedroom penthouse apartment offer panoramic views that stretch over fifty miles from the cliffs of Beachy Head.
In the heart of the coastal village of Mumbles and moments from the pier, this five-bedroom Victorian terrace is set over three floors and retains many original features.
In a sandbanks location, moments from the beach, this three-bedroom apartment has a large open-plan living area and a south-west facing balcony.
This four-bedroom home has an annexe accessed from the side of the house, with potential for improvement and conversion subject to the necessary permissions.
In the heart of the hamlet of Wardley, this five-bedroom period home offers countryside views and a stylish interior, with original features and open fireplaces.
Offering countryside views and landscaped gardens, this three-bedroom Grade II-listed lodge has a spacious conservatory and a large cellar that could serve as a workshop.
Set in approximately 1.5 acres, this four-bedroom home comes with a second, detached property that's currently used as an annexe.
In the hamlet of Newchurch, this former parish church is now a four-bedroom home complete with clock tower and eyrie.
Offering scenic views from a large balcony and sun terrace, this four-bedroom home has a wraparound garden and a heated swimming pool.
Offering views across the Humber and East Yorkshire Wolds from a glass panelled balcony, this four-bedroom barn-style home befits a life of leisure.
This four-bedroom home offers versatile accommodation with annexe potential; features include a hot tub, sauna and Norwegian BBQ hut.
Well-located for schools, colleges and the town centre, this contemporary thatched cottage offers flexible living space with six bedrooms.
Built in 1907, this four-bedroom Edwardian period home has been refurbished by the current owners, retaining many original period features.
Surrounded by landscaped gardens, this five-bedroom home offers living space across three floors.
This lovely country home in Burnham Market is currently run as a popular holiday cottage, with five en suite bedrooms and colourful gardens.
This three-bedroom 17th-century former village bakery is just a few miles from the East Sussex coast.
Set on a landscaped plot, this light and airy four-bedroom home comes with a log burner in the lounge, a fitted kitchen and an open-plan ground-floor layout.
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.
Built on a former chapel site, this impressive four-bedroom home boasts balconies, stunning views and contemporary modern living.
This three-bedroom house is situated in a quiet mews and set over three floors. Features include glazed staircases and high ceilings.
A period townhouse set over four floors, this five-bedroom home was built in the 18th Century and retains many original features.
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.