One in the eye for PPI: the cover that is out of credit

As payment protection insurance is slammed by the competition watchdog, Kate Hughes asks if anyone should be buying these policies

Payment protection insurance (PPI), condemned by consumer groups as a "rip-off", is set for a shake-up.

Customers are being overcharged by a massive £1.4bn for PPI, according to a damning report from the Competition Commission last week, its investigation prompted by a "supercomplaint" from charity Citizens Advice.

PPI, sold as a safeguard against being unable to make repayments on a loan due to accident, sickness or unemployment, is where banks make a big chunk of their profits. The commission's findings raise questions about pushy sales techniques, suitability and, whether PPI should be allowed in its current guise at all.

It is available for almost any type of borrowing – mortgages, cars, personal loans, credit and store cards – and purchase plans on items like three-piece suites and kitchens.

The cover only lasts a year or two and will usually not kick in until any company health-insurance scheme finishes. You may not get your money for months or even years after your claim. And PPI will only cover the repayments on that particular loan, not other pressing costs like food and utility bills.

Despite all this, more people have PPI than any other sort of protection policy, some of which are more likely to be more appropriate for the customer's needs.

"If consumers knew the full details, very few would opt for PPI," says Matt Morris, a financial adviser at broker LifeSearch. "The real problem is that people have these policies pushed on them when taking out loans, without any real idea of the alternatives out there. PPI policies usually only run for 12 to 24 months and are laced with exclusions. They rarely offer value."

Likewise, Peter Chadborn at independent financial adviser CBK, says the paying of commission by banks and other PPI providers to their sales staff is not in the consumer's best interests. "Sales people will often befuddle customers about what they are or are not covered for and what their options are. They will usually fail to discuss any insurance policies or work-based health plans the customer already has, and fail to raise the importance of any pre-existing medical conditions including back pain and stress – which often delay or void the policy payout if something happens.

"A salesperson often implies that the loan or finance will not be granted if the customer does not buy the policy, which is also wrong."

The Competition Commission says the future of PPI will depend on pro- viders clearly informing customers that they have a choice when buying cover, and that shopping around may save them money. The commission also plans to promote competition between providers to help drive down the cost of PPI.

But banks worried about their profit margins, as well as the insurance providers themselves have hit back. "There have been problems with PPI in the past and the industry has worked very hard to make changes," says Nick Starling at the Association of British Insurers, "But we need time for those changes to take effect. It is essential that the commission's remedies do not damage the PPI market."

But financial experts advise that one of the simplest short-term ways to protect yourself financially is building up a reserve equivalent to three to six months' income. This should be kept in a high-interest but easy access savings account.

For comprehensive cover, income protection is usually considered far more suitable than PPI. If you claim, the policy will, if necessary give you an income until your retirement date.

PROMOTED VIDEO
News
Ashton Kutcher speaking at Human Rights Watch's Voices For Justice dinner in November 2013
people'What is so wrong about digging up dirt on shady journalist?'
Life and Style
Jane Merrick rides on a Micro Scooter through St James's Park, on November 18, 2014 in London, United Kingdom.
life
Arts and Entertainment
Babysitter Katie and Paul have terse words in the park
tvReview: The strength of the writing keeps viewers glued to their seats
News
i100
Arts and Entertainment
American singer, acclaimed actor of stage and screen, political activist and civil rights campaigner Paul Robeson (1898 - 1976), rehearses in relaxed mood at the piano.
filmSinger, actor, activist, athlete: Paul Robeson was driven to a miserable death. His story is to be told in film
Sport
Qatar has very little football history

It is a crazy place to play in summer, writes Paul Scholes

Life and Style
Make-up artists prepare contestants for last year’s Miss World, held in Budapest
fashion
News
Actor Dave Prowse in his role as the Green Cross Code Man in 1982
peopleStar Wars actor to reprise his other role - as the Green Cross Man
Life and Style
life
Arts and Entertainment
Brit Marling as PR woman Liz Garvey
tv

It was all about Liz’s cocaine-fuelled brainwave, 'The Metwork'

Voices
The Emir of Qatar Sheikh Hamad and Russia’s deputy prime minister Igor Shuvalov flank Fifa president Sepp Blatter
voices
Life and Style
tech
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    SThree: Trainee Recruitment Consultant - Soho

    £20000 - £25000 per annum + OTE £35,000: SThree: We consistently strive to be ...

    Ampersand Consulting LLP: Markit EDM (CADIS) Developer

    £50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

    Carlton Senior Appointments: Director, Private Bank - San Francisco, CA

    $175 - $200 per annum, Benefits: full benefits: Carlton Senior Appointments: P...

    Carlton Senior Appointments: San Diego, CA – Tier 1 House - Senior MD FA

    Not specified: Carlton Senior Appointments: Senior MD Financial Advisor - San ...

    Day In a Page

    US immigration: President Obama ready to press ahead with long-promised plan to overhaul 'broken system' - but will it get past a Republican-controlled Congress?

    Immigration: Obama's final frontier

    The President is ready to press ahead with the long-promised plan to overhaul America's 'broken system' - but will it get past a Republican-controlled Congress?
    Bill Cosby rape allegations explained: Why are these allegations coming out now? Why didn’t these women come forward earlier? And why has nobody taken legal action?

    Bill Cosby rape allegations explained

    Why are these allegations coming out now? Why has nobody taken legal action? And what happens next for the man once thought of as 'America's Dad'
    Four years of excruciating seizures caused by the 1cm tapeworm found burrowing through a man's brain

    You know that headache you’ve got?

    Four years of excruciating seizures caused by the 1cm tapeworm found burrowing through a man's brain
    Travelling to work by scooter is faster than walking and less sweaty than cycling, so why aren’t we all doing it?

    Scoot commute

    Travelling to work by scooter is faster than walking and less sweaty than cycling, so why aren’t we all doing it?
    Paul Robeson: The story of how an American icon was driven to death to be told in film

    The Paul Robeson story

    How an American icon was driven to death to be told in film
    10 best satellite navigation systems

    Never get lost again: 10 best satellite navigation systems

    Keep your vehicle going in the right direction with a clever device
    Paul Scholes column: England must learn to keep possession and dictate games before they are exposed by the likes of Germany and Brazil

    Paul Scholes column

    England must learn to keep possession and dictate games before they are exposed by the likes of Germany and Brazil
    Michael Dawson: I’ll thank Spurs after we win says defender as he prepares to return with Hull

    Michael Dawson: I’ll thank Spurs after we win

    Hull defender faces his struggling former club on Sunday ready to show what they are missing. But he says he will always be grateful to Tottenham
    Frank Warren column: Dr Wu has big plans for the professionals yet he should stick to the amateur game

    Frank Warren column

    Dr Wu has big plans for the professionals yet he should stick to the amateur game
    Synagogue attack: Fear unites both sides of Jerusalem as minister warns restoring quiet could take 'months'

    Terror unites Jerusalem after synagogue attack

    Rising violence and increased police patrols have left residents of all faiths looking over their shoulders
    Medecins sans Frontieres: The Ebola crisis has them in the headlines, but their work goes far beyond West Africa

    'How do you carry on? You have to...'

    The Ebola crisis has Medecins sans Frontieres in the headlines, but their work goes far beyond West Africa
    Isis extends its deadly reach with suicide bombing in Kurdish capital

    Isis extends its deadly reach with suicide bombing in Kurdish capital

    Residents in what was Iraq’s safest city fear an increase in jihadist attacks, reports Patrick Cockburn
    Underwater photography competition winners 2014 - in pictures

    'Mysterious and inviting' shot of diver wins photography competition

    Stunning image of cenote in Mexico takes top prize
    Sir John Major: Negative West End portrayals of politicians put people off voting

    Sir John Major hits out at theatres

    Negative West End portrayals of politicians put people off voting
    Kicking Barbie's butt: How the growth of 3D printing enabled me to make an army of custom-made figurines

    Kicking Barbie's butt

    How the growth of 3D printing enabled toy-designer to make an army of custom-made figurines