Last updated: 16/10/2020 | Estimated Reading Time: 23 minutes
Loan payment protection insurance
In the past few years, the biggest scandal to hit the world of personal credit was centred around the financial product known as PPI; PPI stands for Payment Protection Insurance. The main reason that the product caused so much controversy was the fact that in many cases, to many people, it was mis-sold. This meant that many people were sold PPI who either did not want it or did not need it. As a result, there have been hundreds of thousands of legal claims against the lenders who sold this product alongside their loans. In many cases banks and building societies required people to opt out of Payment Protection Insurance. If people did not opt out, they ended up being charged for a product that they had never asked for and could often never use in the way that it was meant to be.
This guide will explain exactly what Payment Protection Insurance is and it will also go through the ins and outs of when you may be able to claim on it. This guide will also tell you whether or not it is likely that you will ever be able to benefit from Payment Protection Insurance. In this guide you will also find out how you can tell whether or not you have been mis-sold Payment Protection Insurance. Finally this guide will tell you what action you should consider taking if you realise that you have in fact been mis-sold Payment Protection Insurance in the past.
If you are considering taking out a personal loan, a mortgage or a credit card, you should always be aware of the different products that are currently available on the market. Just like with any other form of purchase, it is always advisable to shop around a bit first so that you make sure that you are never being charged too much or buying a product that is not actually relevant to your own personal situation. However, it can often be too time consuming and stressful to go around to every bank or building society to find out what they are currently offering to new customers. One way that you can do this, without having to spend hours and hours searching through individual products, is by using a loan price comparison tool. These tools allow you to see a vast array of different products all in one place in a very short space of time.
To use a loan price comparison tool, all you have to do is fill out the online electronic form and hit search. The form allows the tool to tailor your search results to products that are relevant to your own personal requirements. Once the search is complete, you can easily browse through the various different products that are currently being offered. This means that you are in a much better position when it comes to making a decision about the product that is right for you. Here at Money Expert, we offer a free and impartial price comparison tool that allows you to instantly compare loans from a huge amount of different banks and building societies.
In This Guide:
- Loan payment protection insurance - how does it work?
- When will my policy pay out?
- What possible exclusions are there from payment protection insurance claims?
- How old must I be and what job must I have?
- Why was payment protection insurance so controversial?
- Do you need payment protection insurance?
Loan payment protection insurance - how does it work?
Despite the huge amount of controversy that this product has attracted in recent times, there are a huge amount of people who believe that it offers a great level of security for those who wish to take out some form of credit. It is important to remember that the product attracted controversy primarily because of the way that it was sold and not because of the intricacies of the product itself. Therefore you may find that, despite the amount of bad press that Payment Protection Insurance has garnered in recent times, it may actually be a product that you find useful to purchase.
Payment Protection Insurance, as the name suggests, is a form of insurance plan. If you decide to take out a Payment Protection Insurance policy, you will be required to pay a monthly premium just as you would for other forms of insurance. Payment Protection Insurance is designed to help you if you find yourself unable to meet your monthly repayments due to an inability to work. Possible reasons your Payment Protection Insurance would begin to pay out would be due to things such as sickness, accident or redundancy.
Generally speaking, you can take out Payment Protection Insurance for any form of credit-based product, This guide will focus mainly on Payment Protection Insurance that you can take out on personal loans. However, you can also take out PPI on products such as mortgages and credit cards. In the aftermath of the PPI mis-selling scandal, the product itself has become somewhat of a taboo word in the financial sector. For this reason you may often find that banks and building societies no longer use the name Payment Protection Insurance. However, if you ever see a product advertised that is designed to cover your loan repayments in the event of some sort of accident, illness or redundancy, it is very likely that the products are essentially the same form of policy.
It is very important to be aware that Payment Protection Insurance was only controversial because of the way in which it was sold. Many banks and building societies had a team of people who posed as “advisors” but who were actually salespeople. These advisors were often paid a commission for any who they could sell Payment Protection Insurance to. As a result of this, they often sold the product to people who had no need for it or who may even have been ineligible to ever make a claim.
Typically you will find three different forms of Payment Protection Insurance on offer. The first is known as unemployment only and will only cover your repayments if you are made unemployed unexpectedly and unwillingly. The second form of PPI is known as accident and sickness only or AS. This form of payment protection insurance will only pay out in the event of some form of illness or accident that renders you unable to work. The final form of payment protection insurance is known as accident, sickness and unemployment or ASU. As you can probably guess, this form of Payment Protection Insurance will cover you for all of the above eventualities.
When will my policy pay out?
Generally speaking PPI policies come with what is often referred to as a deferred or excess period. This period is the amount of time which you will have to wait before you can start to make a claim on your plan. Normally it is at least 30 days long but in some cases it can be up to 180 days. This means that if your deferred period is 30 days, you will have to wait for 30 days before your insurance plan begins to pay out if you are unable to work. However, there are some policies that are often referred to as “back-to-day-one” policies. These payment protection insurance policies can backdate your payments all the way up until your first point of claim. Due to the fact that you will have to wait for a minimum of 30 days before you can begin to receive your repayments from your insurance company, it makes a great deal of sense to have at least around two month’s worth of loan repayments saved up in case of emergency.
What possible exclusions are there from payment protection insurance claims?
As with any form of insurance there are many situations, detailed in the same small print, where you may not actually be able to make a claim- these circumstances are known as “exclusions”.
One such exclusion is often referred to by banks and building societies as “foreseeability of redundancy”. What this means is that if you were made aware that there was some possibility of you losing your job before you took out the insurance plan, then you won’t be eligible to make the claim. Payment Protection Insurance companies can be very strict with this one so be aware that they will often refuse to pay out even if you hadn’t been directly told that your job was at risk; situations in which they may not pay out could be as simple as the fact that there had been other redundancies at your workplace or that your company was not in a financially stable position.
<p>Another situation in which your payment protection insurance plan will not pay out is if you choose to go down the path of voluntary redundancy. This means that if you make the decision to leave your job and do not do so in order to find yourself a different one i.e. you become unemployed, then it is highly unlikely that you insurance company will be willing to pay out to cover your loan repayments. One situation in which you should almost certainly be able to claim for your loan repayments, if you have made yourself redundant voluntarily, is if you need to leave your job in order to become a full-time carer for a loved one who has become seriously ill. It is very important that you check the way in which the policy is worded very carefully before you either sign up to it or, further down the line, quit your job.</p>
The vast majority of Payment Protection Insurance plans will not cover people who are self-employed. You may be able to find an insurance company that will offer to cover you if you are in this situation yourself but be careful. Many of the banks or building societies that will offer to cover you will be sure to put you under a huge amount of restrictions. Typically speaking, payment protection insurers may be willing to pay out for somebody who is self-employed in the event of a serious illness or accident. However, they will not be willing to pay out for your loan repayments if you simply run out of work in your chosen occupation.
Another exclusion that is fairly common amongst payment protection insurance providers is based around any pre-existing conditions that you may have had before you started the insurance plan. When you first take out your payment protection insurance plan, it is compulsory to disclose any information that you have about any medical conditions that you have been diagnosed with. You are also obliged to inform you payment protection insurance provider if you develop or are diagnosed with any medical conditions throughout the course of your policy term.
There are also many exclusions that relate to self-inflicted injuries which may prevent you from working and this also applies to any alcohol abuse-related illness that may stop you from being able to continue with your job. It is important that you check each payment protection insurance policy individually in order to be able to see a full list of all of their exclusions. It is strongly recommended that you do this before you sign up to a payment protection insurance policy because the last thing that you want is to get a nasty shock in not being able to claim when you find yourself unable to work.
How old must I be and what job must I have?
As with pretty much every personal insurance policy product that is currently out there on the market, payment protection insurance plan providers often have a set of age and employment related restrictions that seem to be almost universal among plans. Whilst there are some difference amongst the various different banks and building societies which offer this product, generally speaking they only tend to cover individuals who are aged between 18 and 65.
The vast majority of payment protection insurance providers also have set of employment criteria that you must meet in order to be able to take out a plan with them. One of these employment criteria that is seemingly constant across the entire market, is that you must be working a minimum of 16 hours per week on a permanent contract. If you are in the position where you are currently only employed on some form of temporary contract or no contract at all, you will find it very hard indeed to find yourself a payment protection insurance provider who will be willing to cover you. Generally speaking, payment protection insurance providers also like you to have been in employment for at least six months before you take out the plan.
Even though it may be slightly more difficult to find yourself a policy if you are unemployed, there are still some payment protection insurance providers who will cover you if this is your situation. However, you should be aware of the various restrictions which they will be likely to put in place upon when you can make your claims if you do go down this route. You will still be able to claim if you go out of business but it must be through circumstances that were no fault of your own; one such example of this form of circumstance would be involuntary liquidation.
If you are on some form of income benefits and you want to take out payment protection insurance, you should still be able to. Generally speaking being on benefits won’t stop you from being able to take out these forms of insurance. However, you should be aware that if you do receive an insurance payout from your payment protection insurance provider, it may well have an impact on how much money the government is willing to pay out to you in benefits. In order to be certain, you should speak to the government agency from which you receive your financial support and also check the details of your payment protection insurance plan very carefully.
One thing that you should note is that the vast majority of payment protection insurance plans will only pay out for around 12 months after you first make your claim. However, this will vary from plan to plan and will be affected by how much you are willing to pay for your monthly insurance premium. You can often find payment protection insurance plans that will pay out for as little as six months or up to as many as 24 months.
It is important for you to know that payment protection insurance plans and in turn, their providers are protected by the Financial Services Compensation Scheme, which is run by the government. This means that if your particular insurance company goes bust, they will be able to step in and protect you from losing either your cover or your money. In the event that your payment protection insurance company can no longer trade, the Financial Services Compensation Scheme will normally be able to find you a different insurance provider to take over the remainder of your policy or to issue a policy to replace your existing one. It is also worth noting that if you are in the process of making a claim when your insurance company goes under, the Financial Services Compensation Scheme should be able to cover you.
Why was payment protection insurance so controversial?
In this guide we have already touched upon the fact that payment protection insurance has been right at the centre of one of the biggest controversies to grip the personal banking industry in recent years. It is important that we now look into exactly why the product, which isn’t so bad in and of itself, caused so much scandal and made so many people eligible for compensation. It is also important to go over the ins and outs of what exactly makes someone eligible for compensation, so that if you have been sold payment protection insurance at some point, you can know if you are entitled to compensation yourself.
The main reason behind the huge controversy over payment protection insurance was not due to the nature of the product but instead was because of the way in which it was sold by banks and building societies. The vast majority of payment protection insurance providing companies, had dedicated teams of sales staff who were incentivised to try and sell as much of it as possible because of the commission scheme under which they operated. This meant that the sales teams were put under immense pressure to be able to sell the product to any client that they spoke to, whether it was relevant to that client or not. This meant that on many occasions the sales teams actually strayed very far from the truth in order to try and pin down a sale- and with it a commission.
One of the biggest reasons that this was so problematic was the fact that in most cases, the vast majority of the payment protection insurance salespeople were representing a large, well-trusted financial organisation. This meant that when people were told that the payment protection insurance provider recommended that they purchase the insurance, they were much more likely to do it because of the fact that they did not expect to be lied to by some of the most well-known and respected banks on the high street. In fact in many situations the people who were tasked with selling the payment protection insurance were introduced to their customers as “advisers” when they were, in fact, dressed up salespeople who were there to try and separate the client from their money and not give them sound financial advice.
This culture of high pressure sales went on for quite some time until the financial regulator finally started doing something about it back in 2006. However, the early fines were not seen as effective due to their relatively small size in comparison to the amount of money that could be gained from selling the payment protection insurnace itself. For many banks and building societies these fines were seen as a risk worth taking because of the profitable nature of PPI. As a result, this problem persisted for several years after the first fines were doled out. It was not until 2011 that some real improvements were seen in the industry and people started realising the extent to which the product had been mis-sold. However, by this point it was far too late for many people who had already been sold policies that simply were not relevant to their situation. Many people who were self-employed were sold policies which charged them extra for unemployment cover, even though self-employed people would never be able to claim in the event of unemployment. Soon enough people were beginning to realise that a lot of compensation was now owed to a lot of customers and a number of dedicated firms were set up to try and facilitate the reimbursement of mis-selling victims- for a cut of the gains. This has now resulted in a huge amount of cold calling companies ringing around the country to try and see if people have been sold payment protection insurance in a fraudulent manner. Ironically enough there have since been several scandals about the way in which these cold callers conduct themselves.
As a result of the huge scandal that surrounded this product for so many years, many banks and building societies no longer use the term payment protection insurance. Instead they will use other names that will essentially be referring to the same product. The fact that the product itself has endured the whirlwind that surrounded it, should perhaps be a testament to the fact that the product itself is not fundamentally flawed; the concept of having some form of insurance to cover your loan repayments in case of unforeseen circumstances, is an idea that many people find attractive. However, it is highly recommended that if you do find yourself in a situation where you want to take out payment protection insurance, you read through all of the fine print first so that you know exactly what it is that you’re letting yourself in for.
Do you need payment protection insurance?
Right, so now that you know exactly what payment protection insurance is and exactly why it has been at the centre of so much bad press in recent times, it is time to decide for yourself whether or not it is something that will be suitable for you. You need to decide whether or not you need to make sure that you are insured for repayments in the event of illness, accident or redundancy. Work your way through this list to get a clearer idea of whether or not it is right for you.
The first thing that you should think about if you are considering taking out payment protection insurance is whether or not you are already covered by another form of insurance policy. Many people have what is known as income protection insurance that is designed to protect them from losses in the event of illness, accident or redundancy. If you do in fact have this form of insurance, you may not need to take out payment protection at all.
Another thing that you should consider is whether or not you have the required savings necessary to cover your repayments if you found yourself without an income or with a very much decreased one. If you feel that you do have enough saved up that you would probably be able to manage, then you may want to think long and hard about whether or not you would actually save any money by paying a monthly premium.
The final thing that you should think about before you go any further towards taking out payment protection insurance is whether or not you have friends or family that may be able to give you some sort of financial support in the event of an emergency. You should also consider whether or not your employer would be able to give any aid in the form of financial benefits. These factors may be extremely important in the final decision over whether or not you should be thinking about taking out payment protection insurance.
If any of the potential reasons for not getting payment protection insurance listed above apply to you, then you may want to rethink signing up to a monthly insurance plan. However, if these factors do not affect the way that you feel a payment protection insurance could be beneficial to you, then read on and have a look at some other things that you should be aware of before you buy.
One thing that many people often fail to consider is the fact that you do not have to buy payment protection insurance from the company from which you are borrowing the money. In fact, many of the big banks and building societies charge a great deal more for payment protection insurance than many smaller online competitors. There are a huge number of companies that sell payment protection insurance as a standalone product and the vast majority of these companies will be cheaper than their larger competitors. One thing you should be sure to make certain is that you do not end up in a position where you are double-covered. You need to be certain that you have opted out of any payment protection insurance from your loan provider before you go and get yourself insurance elsewhere.
Another thing that you need to be very careful with is the clause in the contract that refers to any “foreseeability of redundancy”. You will not be able to make a claim if you have already been informed that your job is under consultation. This clause can also apply to situations where people have been aware of other redundancies happening at their company or if the claimant in question was aware of some sort of financial difficulty that their company was going through. You also need to make certain that you inform your insurer about any pre-existing medical conditions that you may have. You need to completely open with them about your medical history so that you are not at risk further down the line. If it comes to light that you been made unable to work because of an illness that you did not disclose to them at the time of writing the policy, then it will most likely be the case that your policy gets rendered invalid and you will be unable to claim. You are also normally obliged to inform your payment protection insurance company about any changes to your medical health that occur in the duration of your policy’s term.
Another thing that you need to be very careful with is the deferred period on your payment protection plan. It is important that you truly understand what this means before you begin your plan. Payment protection insurance plans will not let you claim on them right from the very beginning. Instead they will have what is referred to as a deferred period in which they will not pay out. This deferred period will normally be about 30 days but in some cases it can be as long as 180 days. This is something to think about before you buy because you will need to make sure that you have enough money saved away and set aside so that you can cover your own repayments in that time period. What you can also consider doing is going for a back-to-day-one policy. These policies allow you to reclaim any repayments that you make in the deferred period. This means that if you are forced to make one repayment yourself after you have filed for the claim, you will be reimbursed by your insurer. This normally means that once the deferred period is over, you will receive more than one payment- one for you current monthly repayment and additional ones for any monthly repayments that you may have missed.
Another thing that you should be very careful about with payment protection insurance is that switching policies is more challenging with this form of insurance than with most others. The biggest reason for that it the deferred period at the beginning of the policies. Due to the fact that you cannot make a claim on any repayments in this period, you may find that you end up losing out because of switching. The reason for this is the fact that every new policy that you switch to will end up giving you a new deferred period. This means that by switching policy you may be saving yourself money by moving to a cheaper premium but you will also end up putting yourself at risk of have to make your own repayments in a new deferred period. However, it is important to note that you may in fact find that you have enough money saved up to be able to cover yourself for a new deferred period. If this is the case then you may want to consider switching to a cheaper policy- just be aware of the risk you are taking.