Understanding Payment Protection Insurance – What Is It and How Do I Claim?

What is Payment Protection Insurance (PPI)?

Payment Protection Insurance, sometimes called PPI, is Accident, Sickness and Unemployment Cover (ASU), which is sold with loans, credit cards, hire purchase agreements and mortgages. PPI is a form of insurance which will make repayments on a debt if your circumstances change leaving you unable to repay them yourself. Credit protection insurance and loan repayment insurance are other names for PPI.

Payment Protection Insurance will often cover repayments if you are left unable to work through illness or an accident, made unemployed, become incapacitated or die. It is often sold by banks or other credit providers as an add-on to the loan or overdraft which it is protecting. Payment Protection Insurance will cover minimum loan, credit or overdraft payments for a set period, such as 12 months.

PPI is generally very expensive however, and many policies have exemptions which make it difficult for a policyholder to make a valid claim. Millions of people have been mis sold unnecessary or unwanted Payment Protection Insurance in the past.

Why has Payment Protection Insurance been mis sold?

Some lenders have added Payment Protection Insurance without the knowledge of the customer. This means that many people have taken out credit cards or loans and paying for PPI policies which they do not know exists and therefore will never claim on, even if they needed to.

Some people were sold PPI under the premise that it was not an optional extra, or that a loan was more likely to be approved if they took out the policy.

Some companies, such as telesales operations, led customers into PPI policies by offering a credit card or loan and mentioning that it was ‘protected’ without fully explaining that the PPI protection was optional or explaining the plan in detail.

All of these are examples of mis sold Payment Protection Insurance and this happened on an industrial scale, affecting millions of people in the UK. By May 2008 20 million PPI policies existed in the UK, with an additional 7 million policies being purchased every year since then. It is estimated that up to 40% of PPI customers are unaware that they have been sold the policy.

PPI was mis sold for decades, and one major high street bank sold almost £400m worth of PPI, making around an 80% profit, much of which is suspected to be from unknowing customers. Mis sold Payment Protection Insurance often made banks and lenders more money than providing the loans themselves did.

In April 2011 the UK courts ruled in favour of consumers, preventing the mis-selling of Payment Protection Insurance in the future. Customers should now be encouraged to shop around and make a considered decision before purchasing PPI, and only purchasing PPI knowingly when it has been fully explained.

What can I do if I have been mis sold payment protection insurance?

PPI was mis sold with loans, credit cards and mortgages in the last 30 years. You have been mis sold payment protection insurance if you didn’t ask for PPI but it was added to your policy anyway, you were told that insurance was compulsory, you were told that your loan was more likely to be approved with PPI, you were not told that PPI was optional, or you were unemployed, retired or self-employed when you took out the cover. You are still entitled to claim even if the loan which your PPI covered has been paid off.

The first step to claiming is to contact an insurance claims company which specialise in PPI. They will assess whether you have a case and guide you through the claiming process.