Payment Protection Insurance (PPI) policies were intended to cover the cost of loan repayments in the event of unseen circumstances which could affect the ability to make payments (sickness or unemployment for example). They were usually products sold alongside personal loans, mortgages or credit cards and were designed to provide 'piece of mind' that the policy holder could meet his financial commitments should in the unfortunate event of illness or redundancy.
The problem with Payment Protection Insurance is that it was often sold to individuals who had no real need for the insurance and sometimes sold to people who would not even be able to claim on the policy (for example, self-employed people, retired people or the unemployed). Also, policies usually failed to cover for key reasons for sickness absence, like back problems or work related stress. The costs of PPI policies were not insignificant either, with monthly payments sometimes reaching hundreds of pounds.
The concept of payment protection insurance is not a bad one, the problem is how it has been sold - or missold - by financial institutions. Some major banks have already been fined substantial sums for misselling PPI policies. It's true to say that the misselling of PPI products has landed many banks in a lot of trouble. It is estimated that in excess of £10 Billion worth of PPI policies have been sold and as many as 30 million policy holders might have a claim for compensation. Statistics have suggested that as many as 8 out of 10 of these policies may have been sold incorrectly. Sometimes customers are unaware that they actually have the insurance, not noticing that they have been sold a 'fully protected' i.e. insured loan or mortgage. Common reasons why PPI policies could be considered as being missold to customers are as follows:
- The customer was told you it was mandatory to take out PPI in order to get the loan or mortgage
- The customer was pressure sold the PPI policy
- The customer was not informed PPI was also available from an independent insurance provider
- The customer was not told about any exclusions, such as the ones mentioned above
- The customer was not asked whether they already had insurance which would already cover the loan or mortgage
Many PPI holders who think they may have been missold the product are understandably interested in finding out if they have a valid claim for compensation. There are thousands of reports of cases where customers have successfully claimed significant sums of compensation in a relatively short space of time (sometimes a matter of 6-8 weeks).
