What Is PPI? (And Why Should I Care?)
PPI stands for Payment Protection Insurance. As the name suggests, it is a form of insurance designed to protect your monthly payments on any finance agreements you have.
The idea being that if you find yourself without an income for some reason, the repayments on your finance agreement would continue to be met. So far, so good. No one wants to have the stress of being without an income compounded by having their house, car or whatever else repossessed.
What Is PPI? An In-depth Look
So we’ve seen that PPI is a form of insurance to protect you if you lose your income. It was often sold alongside finance and credit agreements. Its purpose is to protect the you if you ever find yourself unable to make your repayments.
Examples of where a person might find themselves unable to meet their repayments are:
- Having an accident that rendered you unable to work
- Becoming unemployed
- Falling sick to the point you couldn’t work, or
The Most Common Types Of PPI
There are various types of PPI available, the most common being:
- Single premium policies on unsecured loans (around 48% of all PPI policies sold)
- Credit card PPI (around 36% of all PPI policies sold)
- Regular premium policies on loans or mortgages (around 15% of all PPI policies sold)
What Is A Single Premium PPI?
For PPI on secured and unsecured loans, the consumer typically had to pay a ‘single premium’ upfront. A single premium is a one-time payment, as opposed to monthly payments.
This upfront payment of a single premium was then added to the amount the consumer wanted to borrow. As a result of this, the single premium then increased the capital repayments as well as the interest the borrower had to pay each month during the life of the loan.
For many consumers, the compound effect of the monthly interest on this one single payment added up over the years, which is one of the reasons why many people are now winning big amounts back in their PPI refunds.
What Are Credit Card and Mortgage PPI?
Credit cards and store cards are known as ‘rotating credit’. Premiums on rotating credit were paid monthly and then calculated as a percentage of the outstanding balance on the card.
For mortgages, the PPI premiums were mostly a ‘regular premium’, which was paid monthly.
The Complexities of PPI
Payment Protection Insurance was anything but a simple product.
The way it was priced and its associated benefits were often very complex. There were often conditions on the policy that meant some people simply weren’t eligible for the product.
One type of policy condition that could make a person ineligible included things like the customer being:
- Too old
- Too young
- Being in the wrong type of employment
- Being in the right type of employment but under the wrong contract
There were also often other conditions associated with the product, such as exclusions from being covered along with limitations to benefits.
Such details meant that PPI was suitable for some consumers but not suitable for all. As a result of this, firms selling the product should have exercised particular care at the point of sale to ensure their customer would have been better off having it rather than not having it.
How Was PPI Sold?
It’s tempting to say ‘badly’, but that’s not the right answer.
PPI was usually sold either directly by the lender or credit card provider, or indirectly via an intermediary. Intermediary sellers may include:
- Loan and mortgage brokers
- Finance brokers (for example, a car salesroom or other store)
Sales were mainly conducted face to face such as within the bank branch, or by telephone. Some sales were made by direct mail or internet.
Who Is PPI Good For?
This is really the crux of the whole PPI scandal. As we’ve seen above, PPI is actually a good thing to have — in the right circumstances. The whole scandal has come about largely because the people it was often sold to wouldn’t have been eligible in the event that they needed to use it.
For example, if you were self employed when you took out your finance and PPI, then the insurance is about as much use to you as a water-proof tea bag. Why? Because unlike a full-time employed individual, as a self employed person, your income isn’t guaranteed to begin with. The self employed are always in a certain amount of danger of having their income dry up on them.
As such, the terms and conditions of payment protection insurance means that self employed people aren’t covered. So if you’re self employed and you’ve been paying out for PPI, you should now claim your money back.
Of course, it’s not just the self-employed that were mis-sold PPI and who should claim their money back. Very few population segments escaped the scandal, which means just about everyone that has ever had any kind of finance is possibly a victim.
Part 2 — The PPI Claims Process
If you think you may have been mis-sold PPI but aren’t sure (or you are absolutely sure), part 2 of this three part series — PPI Claims — will take you through all you need to know about getting your money back.