Record payment protection insurance complaints
MONEY MARKET - 1ST AUGUST 2007
The Financial Services Ombudsman has announced a big rise in the number of complaints about loan protection insurance. In 2006/07 it handled over 1,800 of these disputes, which is a 39 per cent increase on the year before.
Payment protection insurance is designed to meet debt repayments in the event that borrowers are made redundant or are unable to work due to illness or accident. Policies generally pay out after a deferred period of anything from one to three months and will then cover the loan for up to a year.
Samantha Owens, an analyst at Moneyfacts, says that the most common problem with payment protection insurance tends to be that people don’t really know what they are covered for.
“It’s important that borrowers make sure they are eligible for the benefits and that they are not already covered elsewhere,” she says.
Payment protection insurance is not compulsory yet, some lenders automatically include the policy as part of their loan package.
People should always check whether this is the case and should ask to see what their repayments would be without these premiums.
For laons of £10,000 over five years, best-buy cover would normally cost upwards of £30 a month.
Those who feel they need this protection will probably save money by going to an independent provider, such as www.britishinsurance.com or www.paymentcare.co.uk. These companies quote accident, sickness and unemployment cover according to the size of the monthly payment to be protected, which means that if needed, a single policy can be used to cover multiple loans.
Some payment protection insurance providers add the cost of the insurance to the loan and then charge interest on it. These single-premium policies also tend to be heavily front loaded so that if a borrower repays their loan early they will not receive the pro rata return of the payment protection insurance premiums. The key point is to always check the small print before taking out the cover.
Accordingly to a 2006 moneyfacts.co.uk user poll, 53 per cent of consumers thought their provider was too pushy in trying to sell them payment protection insurance. There are huge profit margins to be had and so staff have historically been encouraged to sell this product, even if it is not that beneficial to the customer.
You should consider carefully whether to take out payment protection insurance when borrowing money, say Moneyfacts. The report said that government statistics showed that 755,000 people were made redundant in the UK between June 2002 and May 2003. “We can never predict whether we will be unable to work due to sickness or accident, said the report. “The decision to take out payment protection insurance also depends on how much you are borrowing and whether you feel you will be able to cover repayments if you cannot work through savings or other income.”
However, Owens says that things are changing to the customer’s benefit.
“If the payment protection insurance provider doesn’t proactively ask their clients the right questions to ascertain whether they would be eligible for the benefits and whether they have cover elsewhere then the borrower may have a claim for mis-selling,” says Owens.
Anyone in this position should write to their loan/payment protection insurance provider and if not satisfied refer the case to the Financial Ombudsman.
