James Daley: How to avoid being a victim of the rip-off

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British consumers have been ripped off by overpriced and inadequate payment protection insurance (PPI) policies for well over a decade. Today, the industry is worth around £5bn-a-year and is estimated to account for as much as 20 per cent of UK consumer profits for some banks.

In spite of numerous inquiries – including a continuing Competition Commission investigation – thousands of loan, credit card and mortgage customers are still being strong-armed into buying these products every year, even though they are often unsuitable.

The idea behind PPI is a sound one, however. If you are out of work due to ill health or redundancy, the policies are designed to make sure you do not need to worry about your debt repayments. The problem is that most do not start paying out until you have been out of work for at least six months, while the providers make it remarkably difficult to make a claim.

Then, there is the issue of price. In many cases, banks' PPI policies can prove more expensive than the repayments on the loan.

However, it is possible to pick up policies for much less. Independent brokers such as British Insurance, ( www.britishinsurance.com) sell policies for less than £3 a month. And whatever you are told when you take out a loan or a mortgage, remember it should never be compulsory to take out a PPI policy at the point of sale. If you are sure you want a policy, make sure you shop around.

Websites such as www.moneysupermarket.com allow you to compare the best prices on offer.

For most people, however, PPI will not be the best solution. If you are worried about being out of job due to sickness or redundancy, then why stop at simply insuring your loan or mortgage repayments? Income protection policies can offer you cover for your entire salary, ensuring you can pay all your bills if you are unable to work. Furthermore, unlike most PPI policies, income protection will continue to pay out for as long as you are out of work. Many PPI policies are only good for a year or two.

It may also be worth considering taking out critical illness cover, which pays a lump sum if you are diagnosed with a serious medical condition. Independent brokers such as Lifesearch ( www.lifesearch.co.uk) will search the market to find the best-value protection products for your needs.

But before you buy protection, it is worth checking what your employer offers. Many large companies have insurance for their staff, and will pay a proportion of your salary if you cannot work because of illness.

Resist the hard sell from your bank or credit card provider. You will almost certainly find better value elsewhere.

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