Summary
Around 50% of borrowers get Payment Protection Insurance for their loan. It would appear that many are being ripped off. This article investigates the pitfalls and the solutions.

Loan cover - watch out for Payment Protection Sharks

Author: Michael Challiner

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The Financial Services Authority (FSA) has been investigating the way Payment Protection Insurance is being sold by loan providers which include some of the UKs biggest banks and building societies. And its big business. Sales of PPI as its called, earn lenders more than £1billion a year. (mortgage interest rates)

PPI is designed to protect borrowers by paying monthly (mortgages ) loan repayment in the event that the borrower becomes unemployed or unable to work though accident or illness. Many lenders sell the insurance alongside the loan with around 50% of customers agreeing to the insurance.

However, according to the Department of Trade & Industry, only 4% claim and of these claims 25% are rejected. This may be partially explained by the FSAs investigation which ( life insurance quotations ) found that around half of the lenders surveyed failed to explain the details and exclusions to customers or make sure the insurance was suitable for the clients. Whilst the investigation reportedly does not find that lenders are compulsorily selling the insurance, it was frequently automatically added to loan quotations without it being disclosed that the insurance was, in fact, optional. (loan)

Even worse, some lenders are failing to point out to borrowers ( life insurance quotes ) that the cost of the insurance for the full period of the loan, was being added as a lump sum at the outset rather than being paid as a monthly premium. This means that the borrower cannot cancel the insurance without redeeming the entire loan and renegotiating a new loan. (life assurance)

And hey, some of these lenders certainly know how to charge for PPI. According to Simon Burgess, Managing Director of British Insurance Ltd, one of the big high street ( secured loans ) banks typically charge £30 per £100 of loan insured. This, he says, compares with between £4 and £6 if bought separately on the internet. This view is supported by price comparison service uSwitch which says taking out PPI with banks can increase the amount you pay for cover by nearly 500%.

(mortgage deals)