Payment protection falls down on the job
THE DAILY TELEGRAPH - 24TH MARCH 2007
Seven companies have been fined a total of pounds 1.6m by the Financial Services Authority (FSA) for mis-selling payment protection insurance recently, raising hopes that thousands of purchasers of payment protection insurance could be entitled to compensation.
Payment protection insurance is a form of accident, sickness and unemployment cover (ASU) which is also sold as mortgage payment protection insurance. Usually, people are sold payment protection insurance when taking out loans or credit cards. This form of cover pays big commissions to salesman but payouts to policyholders are often modest.
The stated purpose of these policies is to cover your monthly payments if you are unable to work because of an accident or illness or because you lose your job. However, the rules and conditions are very tough, meaning claims are often rejected - particularly where people are self-employed.
Figures produced by industry research firms Defaqto and Data Monitor show payment protection insurance policies generate around pounds 5.5bn of premium income a year. Only between 15pc and 20pc of that is paid out in claims.
Simon Burgess, managing director of British Insurance, said: "Consumers are spending thousands of pounds on insurance that will not pay out if they need to make a claim and many have grounds for complaint. People should consider how they were sold their policies and read the small print to see if they have the cover they were led to believe they have.''
One of the big failings of payment protection insurance policies is the unemployment cover. Usually you will not be able to claim unless you have worked continuously for at least six months beforehand.
Similarly, if you accept voluntary redundancy or early retirement, you are also likely to be barred from claiming.
For the self -employed, the rules are even tougher. You are unlikely to be covered for a drop in earnings if your business goes through a bad time and generally your business will have to go bust before a claim will be considered.
In addition most payment protection insurance policies do not cover mental health problems including stress or depression nor will you be able to claim for muscular trouble such as back ache or any pre-existing conditions.
FSA spokesman Robin Gordon-Walker said: We are determined to do whatever it takes to get the market working better for the consumer. We are taking it very seriously and want to see progress.''
One area of concern is single premium policies. Mr Gordon-Walker explained: "In these instances, the insurance can cost the equivalent of 10pc of a loan and the cost is added to what has been borrowed so it also accrues interest charges.
"An additional worry is refunds where people pay off loans early but are not given any rebate - or only a very small one - on their insurance cost.''
Even where firms do offer some refund of premiums when a loan is repaid early, it is usually less than the full amount that would be due because they claim that all their costs are incurred upfront.
Payouts from a payment protection insurance policy will normally only continue for one year and none continues for more than two years.
This is the main difference between this kind of insurance and full income protection cover.
Kevin Carr of Lifesearch noted: "For many people a full income protection insurance is a better option. The benefit is that payouts following a claim can continue until you reach retirement age.''
Here are 10 questions to check whether you have been mis-sold a policy.
*Were you told the policy was optional?
*Were you told you were buying a form of insurance or were you just shown phrases like "fully protected loan repayments''?
*Were you given a statement of Demands & Needs?
* Did you receive Financial Services Authority documentation setting out your rights?
*Were you allowed to check terms and conditions prior to sale (either face to face or online)?
*Did you receive a return of premiums for early repayment of a loan?
*Were you asked if you had any insurance in place that already covered the risk?
*Were you asked about your employment circumstances?
*Were you asked about pre-existing medical conditions or informed about restrictions on the cover?
If the your answer to any of the questions above is 'No' then you may be entitled to compensation.
HOW TO CLAIM COMPENSATION
If you believe you have been mis-sold a policy, not given a refund of premiums were it was due or have discovered the cover was unsuitable when you have made a claim, you should first contact either the insurance company who provide the policy or the firm who sold it to you.
It is best to do this by sending a letter by recorded delivery, so you have a copy yourself and proof it has been received.
You have a right to receive an acknowledgment that your complaint has been received within five days and the insurer or the company which sold the insurance must give you a full response within eight weeks.
If you are still not satisfied, you can take the matter up with the Financial Ombudsman. To do this you will need a complaint form which is available online at www.financial-ombudsman.org.uk or by phoning 0845 080 1800.
Financial Ombudsman spokesman Emma Parker added: "If people are unsure what to do, they can also contact us and we can even send the initial letter on their behalf.''
If nothing else, where a policy has been mis-sold you should receive a full refund of your premiums plus some interest.
You can write to the Financial Ombudsman at South Quay Plaza, 183 Marsh Wall, London E14 9SR.
CASE STUDY
Stephen Dimsey has had not one but two bad experiences regarding insurance cover which did not provide the financial protection he expected.
Mr Dimsey, 28, is a self-employed computer programmer who lives with his 32 year old wife Lorraine and two sons - Michael, 2, and eight week old Matthew - in Gillingham in Kent. His first experience with this sort of insurance was when he decided to buy a new car.
He explained: "We went to a car supermarket but needed a pounds 5,000 loan. There was a so-called expert there to advise you on financial arrangements and he said the loan would cost us pounds 180 a month.
"It was not until I queried it that he acknowledged the monthly figure included the cost of insurance. As a result, I said I would shop around and he then offered us a loan without insurance for pounds 120 or with insurance for pounds 150.''
They accepted the loan but balked at the pounds 30 a month insurance cover. By going online the family was able to buy the same payment protection insurance from British Insurance for just pounds 5 a month. "It was also made clear to me that the unemployment cover would only come into play in extreme circumstances which the guy in the car supermarket had not done. But we went ahead anyway because I wanted the accident and sickness cover,'' added Mr. Dimsey.
His second run-in over this sort of insurance was when he recently took out a new mortgage. The lender said he would need a mortgage payment protection policy but did not tell him about potential problems in qualifying for payouts because he is self-employed.
"They quoted me pounds 54 a month to cover the payments of around pounds 700. When I said I would go elsewhere they made me sign a form to say I had refused their cover and charged me a pounds 50 administration fee.
"But the charge from British Insurance was just pounds 8 a month so I almost made up this fee in just one month,'' noted Mr Dimsey.
Simon Burgess, managing director of British Insurance said: "If people want any form of payment protection insurance they should shop around. The policies sold by credit card issuers, loan companies and mortgage providers are rarely competitive.''
Stephen Dimsey has had not one but two bad experiences regarding insurance cover which did not provide the protection he expected.
Mr Dimsey, 28, is a self-employed computer programmer who lives with his 32-year-old wife Lorraine and two sons - Michael, 2, and eight-week-old Matthew - in Gillingham in Kent. His first experience with this sort of insurance was when he decided to buy a new car.
He explained: "We went to a car supermarket but needed a pounds 5,000 loan. There was a so-called expert there to advise you on financial arrangements who said the loan would cost pounds 180 a month. It was not until I queried it that he acknowledged the monthly figure included insurance. I said I would shop around and he then offered us a loan without insurance for pounds 120 or with insurance for pounds 150.''
They accepted the loan but balked at the pounds 30 a month cover. By going online, the family was able to buy the same payment protection insurance from British Insurance for just pounds 5 a month. "It was also made clear to me that the unemployment cover would only come into play in extreme circumstances which the guy in the car supermarket had not done. But we went ahead anyway because I wanted the accident and sickness cover,'' added Mr. Dimsey.
His second run-in was when he took out a new mortgage. The lender said he would need a mortgage payment protection policy but did not tell him about potential problems in qualifying for payouts because he is self-employed.
"They quoted me pounds 54 a month to cover the payments of around pounds 700. When I said I would go elsewhere they made me sign a form to say I had refused their cover and charged me a pounds 50 administration fee.
"But the charge from British Insurance was just pounds 8 a month so I almost made up this fee in just one month.'' Simon Burgess, managing director of British Insurance, said: "If people want any form of payment protection insurance they should shop around. The policies sold by credit card issuers, loan companies and mortgage providers are rarely competitive.''
