Beginner's guide to: Reclaiming mis-sold PPI

What is PPI?

The idea behind Payment Protection Insurance is that it covers your debt payments if you become unable to work due to an accident, sickness or unemployment. It can be sold alongside all sorts of debts from credit and store cards to mortgages and personal loans.

What is the problem?

These policies usually cover you for 12 to 24 months after any payout from your employer, but not for the most common reasons for being off work – stress or back problems.

The cover is very expensive compared to alternative, longer-term and more comprehensive cover like income protection insurance. When sold alongside loans or finance agreements, PPI is often sold as a 'single premium policy', which means a lump sum covering the cost of the insurance is added to the amount you have borrowed, so you end up paying interest on both the insurance premium and the loan. Adding PPI to a £7,500 five-year loan could cost an additional £2,000-£3,000, for example.

There is also evidence that customers are wrongly led to believe they cannot take the loan or credit unless they take out a PPI policy as well. Consumer watchdog Which? estimates two million people have been mis-sold PPI they can't use, and only around 11 per cent of claims are paid.

What are the regulators doing?

Single premium PPI policies will be banned as of May this year. From next year, lenders will not be able to sell PPI policies within seven days of selling a loan or credit card.

What do I do if I was mis-sold a PPI policy?

Many complaints handling agencies deal with reclaiming PPI premiums and interest, for a cut. But others offer similar help for free, including Which? at www.which.co.uk/ppiclaim. Users select their provider from the menu, fill in their contact and PPI policy details, answer basic questions about why their policy was mis-sold and the tool creates an email that can be sent directly to the provider or printed out as a letter.

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