Payment Protection Insurance

When you took out your mortgage, personal loan or applied for your credit card, did you pay extra for payment protection insurance? Because if you did, there's a chance that this expensive form of protection could be worthless if you ever need to make a claim under the policy.

The idea behind payment protection insurance (PPI) (also known as unemployment insurance) is simple. It's mean to pay out in order to cover the payments on your loans if you experience a sudden drop in income, such as losing your job.

Great!

Except in practice it doesn't work like that. The Office of Fair Trading (OFT) has launched an investigation into payment protection insurance after the Citizens advice bureau discovered that 85% of their clients' PPI claims had been refused by the provider.

In the UK alone, PPI premiums amount to £5.4billion a year. And from that figure, the insurers only pay out just over £1billion. That leaves them with over £4billion pure profit. No wonder they're so keen to make sure that you're "protected".

The main problem is the greed of insurance companies. They're so keen to squeeze every drop of profit out of their customers that payment protection insurance is sold to anyone who can be persuaded to pay for it. Even if it's unsuitable for their circumstances.

In many cases, lenders will sell this insurance to any borrower, without checking to see if their customer is eligible for the cover. And when their customer has reason to make a claim, the majority will be rejected because their circumstances are specifically excluded in the small print.

For example, contract workers, part time workers, the self-employed and those who stop work voluntarily are likely to be excluded.

It's also common for policies to exclude certain age limits, people who had pre-existing medical conditions when the policy began, people who cause their own injuries, stress, depression, bad back and complications from cosmetic surgery.

PPI policies are also likely to be cancelled if the insurance company decides that you knew you were ill or likely to lose your job when you applied for the insurance cover.

Part 2: Payment Protection Insurance

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