Money Insider: Scandal of PPI puts users off new-style cover


It's not surprising consumers are hesitant about signing up for any form of insurance protection in the face of the seemingly never-ending Payment Protection Insurance (PPI) debacle.

The problem is we now have a situation where there is a lack of trust in protection products, and sadly people who could safeguard their financial future with this valuable back-up won't give it a second thought. Even though billions of pounds of compensation is being paid out by the banks, the image of protection cover in its various guises remains in shreds.

One quarter of growth doesn't mean the UK economy is anywhere near out of the woods, and further painful and unavoidable cuts are still on the agenda. People should be concerned about how this could impact their employment situation, and in these times of economic uncertainty, shouldn't be tarring all insurance plans with the dirty PPI brush.

The new breed of short-term income protection policies and lifestyle protector products are virtually unrecognisable from the much-maligned old-style cover. With PPI you had to pay the full premium up front, it was added to your loan and you were charged interest on top. If you repaid your loan or cancelled your policy early, you lost out financially as the refund wasn't made on a pro rata basis.

The PPI product represented a very poor deal for borrowers while being a huge profit generator for lenders.

New lifestyle protector products offer far more flexibility and choice for someone looking to protect their finances, including the ability to tailor the cover so you only pay for what you need. You protect a set monthly amount (not just loan or mortgage commitments), in most cases up to a maximum of 60% of your gross monthly income. You select whether you require protection against sickness, unemployment or both, and you can choose how long you want to wait before the policy pays out. The longer you wait, the cheaper the cover becomes.

Premiums are payable monthly but, unlike PPI of old, you are able to cancel at any time without financial penalty. Protection is a fundamental element of financial planning for any family, and I would encourage people to understand the cost and benefits before writing it off and leaving themselves in a potentially vulnerable financial situation further down the line.

The PPI scandal and subsequent actions of the claims vultures have left a bad taste, but it is important that people understand that the new-style cover is not more of the same, but something that will help to protect themselves and their families without costing an arm and a leg.

Just take a couple of minutes and ask yourself: "If I was unable to work for the next six months, could I continue to pay the household bills?" If the answer is no, then considering some form of income protection could prove to be a financial lifesaver, and warrants a closer look.

Card providers turn attention to lower fees

Until very recently, credit-card companies have been fighting for best-buy supremacy by offering the longest interest-free term. However it seems that the combination of a 20 month plus 0% introductory deal is not what many customers have been seeking, and now a secondary balance transfer market has developed.

Some people don't need almost two years to pay off their transferred balance, but instead are more interested in a shorter term but lower upfront balance transfer fee cost. On a typical balance transfer deal you'll pay a one off fee of between 2.5% and 3.5% of the sum switched to your new card. For those with larger balances and the capability of repaying much sooner than 23 months, the balance transfer fee is the critical feature.

In the last ten days there has been a flurry of activity from lenders in this area with NatWest offering 0% for 13 months with a 1% fee, MBNA with 14 months and a 1.25% fee, followed by Barclaycard trumping both deals by offering a partial refund on its fee, bringing it down to just 0.9% and 12 months free.

For someone with a balance of £5,000 to move across you can see the attraction as these new deals represent a saving of £100 or more against the traditional balance transfer cards.

Andrew Hagger is an independent personal finance analyst from

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

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