PPI is an insurance product that is sold alongside loans, credits cards and other debt-based products. The idea is that PPI will cover your repayments if you can’t make them because of loss of income. Unfortunately, this isn't always the case.
Sounds like a good idea, what’s wrong with PPI?
The principle is a good one – after all, meeting repayments on debts like loans and credit cards can become an issue if you lose your job, or are too ill to work. Unfortunately, there is a real problem with the way the idea has been put into practice. First of all, in many cases the benefits of the policy are far outweighed by the high cost of premiums.
More importantly, many policies have been mis-sold – with PPI being offered to (or even forced upon) people who are explicitly excluded from making a claim by the policy’s very tight wording. For instance, PPI often does not cover people who are self employed or retired and will not usually pay out on claims driven by pre-existing medical conditions (even if the insurer didn’t ask about this when selling the policy). Common complains such as stress and back problems can also be excluded. The shocking fact is that fewer than one in five PPI claims are successful.
Is there anything good about PPI?
Yes, if you are genuinely worried about losing your job, or being unable to work in the future (though not because of a pre-existing medical condition), PPI can be a cost effective way of protecting yourself. However, as a general rule, don't simply take out PPI with the same firm that is selling you a financial product (this is, in fact, no longer possible for personal loans). Shop around and find a low cost policy that is a good fit for your circumstances, and be sure to understand the policy exclusions (i.e. reasons why a claim might be rejected) before you buy.
- Think about whether you really need PPI
- Shop around to find a good deal
- Read the small print and ask questions about your ability to make a claim before you buy
How is PPI mis-sold?
There are a number of tricks to look out for. Lenders have been known to stoop pretty low in order to sell PPI, which is a bit of a money spinner. For instance, you may have been told that PPI is compulsory (some lenders have been known to refuse to even give a quote without a commitment to taking up PPI being in place). This is entirely untrue, lenders can insist on PPI being in place, but you do not have to buy it from them. Even worse, lenders have been known to add PPI to credit agreements without even telling the customer.
Finally, some lenders also used a scheme known as the ‘single premium’ approach. Essentially, this involves adding the total cost of the PPI policy to the loan – so it is paid up front. The problem here is that the cost of the PPI is rolled into monthly repayments, so you end up paying interest on the cost of the PPI.
- Check your credit agreements to see if you are paying for PPI
- Always check any new credit agreements to see if PPI has been added without your knowledge
- Don’t be bullied into taking out PPI
- Remember that adding the cost of PPI to a loan will make it more expensive overall
What is being done about PPI?
It has taken a while for the authorities to sit up and take notice. Finally however, the Financial Services Authority and the Competition Commission have started to act. The FSA is now taking action against firms found to have mis-sold PPI, whilst the Competition Commission has recommended that PPI should not be sold alongside debt products.
Can I make a claim to get my money back?
If you think you have been mis-sold PPI, yes. However, it is important to be aware that PPI only came under the jurisdiction of the FSA in January 2005. PPI policies sold before then are not covered by the latest rules – though you can still complain to the Financial Ombudsman Service if you want to reclaim your premiums.
How do I know if I have been mis-sold my PPI?
In most cases this comes down to whether you have been sold an insurance product whose terms and conditions prevent you from ever making a claim. Some common examples of mis-selling are:
- You were not employed when you took out the policy
- You had a medical condition that could have prevented you from working when you took out the policy
- If the entire cost of the PPI was not explained to you, or if you were only quoted the cost of a loan including PPI
- If you were told that PPI was compulsory. Lenders can insist you have it, but they must allow you to shop around
- If important features of policy, such as cancellation, were not explained
- If you were older than the upper age limit of the cover at the time the policy was sold to you
- If you were sold PPI by one of the firms against which the FSA has taken action – you can check this by searching the FSA register. In particular, look at the firm’s ‘disciplinary history’.
How much will I get back if I am successful in making a claim?
If you are successful in proving you were mis-sold PPI, you will get back all your premiums, plus 8% interest. If you were not mis-sold, but then treated unfairly later (for instance when trying to cancel a policy) you will be entitled to a ‘fair refund’. For instance, if you tried to cancel your policy after six months, you will usually be entitled to a refund of any premiums after that date, minus any ‘reasonably incurred costs’ the insurer may claim.
How do I claim?
This process is very similar to that for reclaiming bank charges:
1. First of all, you need to write to the company that sold you the PPI policy in the first place, setting out why you believe you were mis-sold to, or unfairly treated and asking for a refund (you can use our template letter as a starting point). In most cases the company will deny everything, but don’t be put off.
2. Write to them again, setting out your grievances again, and this time insisting you will go to the Financial Ombudsman if you do not get a refund within 14 days - choose the appropriate letter template from those listed below.
- Letter template 2 - use this letter template if you do not receive a response to your original letter within 8 weeks.
- Letter template 3 - use this letter template if the company have responded to your original letter denying that your PPI policy was mis-sold.
- Letter template 4 - use this letter template if the company have written to you acknowledging your complaint but offering an inadequate amount in settlement.
3. If you are still not satisfied with the response you get, take the matter to the Ombudsman.
More information about how the Ombudsman assess complaints is available from their website.
There is an alternative to claiming for PPI yourself but it will cost you. Companies like PPIReturn will work out how much you're owed and pursue compensation on your behalf.
While they will charge a fee most only do this if your claim is succcessful and deduct it from the amount your receive in compensation. As such they're worth considering if you don't want to do the leg work yourself as at least you'll get some of the money you're owed returned to you.
