What is Payment Protection Insurance (PPI)?

 By: Green Mark Smith
Introduction

Payment Protection Insurance, commonly abbreviated as PPI, is an insurance coverage package, meant to cover outstanding loans, overdrafts and other forms of debt. This insurance cover is usually an add-on product that is included in the final computation of overdrafts and loans. The primary purpose of this product is to protect the borrower, from circumstances that are beyond their control, which may prevent them from servicing their debt. Such circumstances include loss of employment, ailments, accidents, or death.

The Controversy Surrounding Payment Protection Insurance Claims

Statistics show that PPI has the largest number of rejected claims, more than any other insurance product. This is largely, due to the way that this product is sold to consumers. First, due to the nature of this insurance product, being an add-on product, most consumers are unaware that they have purchased insurance coverage. In addition, since underwriting is done at the time the product is being sold, it becomes rather difficult for consumers to assess, whether the policy is necessary, considering their circumstances at the time of purchase.

This is why the payment protection insurance has been a subject of controversy, with consumers alleging that their policies were cases of PPI mis-sold. The Financial Services Authority, the Office of Fair Trading, and The Citizens Advice Bureau, are some of the agencies that have in the past, voiced similar concerns, thus encouraging consumers to start making PPI claims.

How PPI Was Mis-sold

An in-depth look at how the policy was being sold to consumers, unearthed the dirty techniques that were being used, by unscrupulous lenders, to either trick, or force borrowers to purchase the insurance cover. Some of these techniques include:

- Openly misleading borrowers into believing that by accepting the insurance policy, they stood a better chance of accessing credit.

- Surreptitiously, attaching the PPI to loans, without informing the concerned borrowers. Since the consumers are unaware, they are unable to make Payment Protection Insurance claims.

- Selling insurance to ineligible candidates, for instance, to people who are already unemployed or retired, hence do not require coverage against loss of employment. Such people cannot therefore, lodge payment protection claims.

- Pressurizing consumers, to force them to purchase the policy.

- Failing to give a full disclosure to consumers, concerning the terms and conditions of the insurance policy, exemptions and breakdown of costs.
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