Even though the Financial Services Authority has been cracking down since 2005, when the Citizens Advice made a big complaint to the Office of Fair Trading, banks are still "ripping off" customers by making a lot of money off of payment protection insurance (PPI).
People think that banks make about 80% of their money by selling payment protection along with loans and credit cards. Even though high street lenders won't say what their actual profits are, the Competition Commission, which has been doing a thorough review of the sector, is now using its power to force the banks to open their books.
Even though taking out the cover with your loan or credit card seems like the easiest option, it is also the most expensive. It can cost you up to five times as much as if you had bought the insurance from a separate company. Not only does the high street lender make a lot of money from the sales, but they also get 90% of any profit if a claim on a payment protection policy is less than what was expected.
Payment protection insurance is bought by people who have monthly loan or credit card payments and worry that they might lose their jobs in the future because of an accident, illness, or being laid off. If a policy is right for their situation, it would pay out enough money for the person to pay off their monthly loan payments without having to worry or worry about where to find the money. You do need to make sure that the exclusions in your policy don't mean that you can't file a claim. Some exclusions apply to all policies, like if you are self-employed, retired, only work part time, or have a medical condition that was there before. However, providers can add more exclusions, so you need to read the fine print.
Most policies were sold wrong because the people selling them didn't give enough information. For example, when a high street lender sells cover along with a loan, they don't give out much information. This is why many people bought policies they couldn't make a claim on.
If a policy would work for you, it would give you a tax-free income based on how much you pay each month for your loans and how old you are when you buy the policy. Once you had been out of work for the amount of time stated in the policy, you would get paid for between 12 and 24 months, depending on the provider. Usually, a policy will start to pay out between the 31st and 90th day, but this depends on the insurance company and you'll need to read the fine print.
If you buy payment protection insurance from an independent provider, you'll get the information you need to make sure a policy is right for your situation. You'll also save a lot of money and know you're getting a good product.
