There are about 20 million loan insurance and mortgage insurance policies in the UK, and about half of them may have been sold incorrectly. The public found out about the mis-selling scandal in 2005, when both the Office of Fair Trading and the Financial Services Authority started looking into the industry. Several well-known high street lenders and providers of payment protection insurance were then given fines (PPI).
Most of the people who were fined were high street lenders who sold insurance along with a loan or credit card but didn't tell customers much about what wasn't covered. This meant that the customer was buying something they didn't know much about.
But it's important to know that the problems with loan cover aren't caused by the policy itself, but by the way loan payment protection insurance is sold. Those who sell it use bad sales techniques and don't know enough about it. When loan protection is bought right and the exclusions are taken into account, it can work as it was meant to and help people who have lost their income.
It was hoped that the mis-selling would stop after the Financial Services Authority gave providers rules and suggestions to follow. Even though some people have followed these rules, the Financial Services Authority (FSA) said that they have looked into more than 4,000 cases of mis-selling in 2007. This is twice as many as the year before. This shows that a lot more needs to be done if people are to trust the products again.
If a policy is right for you, it will start paying out after you have been out of work for a set amount of time, which is usually between 31 and 90 days. Once the policy started paying out, it would keep doing so for another 12 to 24 months, depending on the company. Loan insurance can be a very important safety net because falling behind on payments means at the very least getting a bad credit score that can take years to fix.
You do need to pay attention to what the cover doesn't cover. Some of the most common reasons to be left out are working part time, having a long-term illness, or being old enough to retire. There could be more, depending on the company, so it's important to read the policy's main points before you buy it.
The FSA is planning to add comparison tables to the way all payment protection insurance policies are sold. This is one of the changes that are coming to the way payment protection insurance is sold. The tables will show the customer what a policy doesn't cover and how much the coverage would cost. There will be a series of questions that will help the customer decide which type of payment protection insurance is best for their needs. This will lead to the right answer and the person will get the coverage that is best for their situation.
