Payment Protection Insurance

Until a few years ago, not many people would have heard of Payment Protection Insurance, commonly referred to as PPI. Now it is almost inescapable, with TV adverts and text messages bombarding people with queries as to whether they have ever had PPI on bank products.

But what exactly is Payment Protection Insurance, and what type of protection does this type of insurance offer people who take it out?

Well, this problem enables consumers to be sure that a loan gets repaid even in the even of the person who borrows the money dying or having some other circumstance that would put repayment in jeopardy: more commonly something like a long term illness or perhaps losing their job meaning that the revenue they had which was paying for the loan has gone.

It is a product that is standardly sold by anyone who offers credit, and is an add-on payment to the loan or overdraft product, as relevant.

So it's just another type of insurance product that some people choose to take out for peace of mind, and others don't. Like is standardly the case with insurance, you hope you never actually have to claim on it. So why the controversy with PPI in particular?

The main reason seems to be allegations that Payment Protection Insurance was mis-sold by some quarters and thus that many people were unaware that they even had it, despite the fact that they were paying for it. The reason for this is said to be that there were commissions available for those who sold PPI as an addition to a loan and therefore they were highly incentivised to add it on. Several companies in the UK were fined by the FSA for mis-selling PPI. Many companies have sprung up that help people reclaim PPI that they believe was mis-sold to them.

Of course it needs to be said that Payment Protection Insurance can be a useful form of insurance, and if taken out in full understanding of what it is and the protection that it does and doesn't afford, it can indeed be a very sensible form of insurance to get.

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