Payment protection insurance is an insurance cover that offers security with regards to debt repayment if you are unable to work and personally repay a loan. It is commonly known as Accident, Sickness and Unemployment insurance as it covers the borrowers’ minimum monthly repayments in events of sickness, accident, or layoffs. It is often added onto personal loans, mortgages, car loans and credit card loans.
So, how does Payment Protection Insurance work?
Whenever a policy holder is unable to make scheduled payments either because he has been incapacitated by injury or illness or is unemployed, the insurance company makes the payments for him. The amount of benefit can be the complete debt amount or a minimum monthly payment. If the policy holder dies or is permanently disabled, the policy provider is liable for the loan. In other cases of injury, illness or unemployment, the company might make installment payments for a limited period – 12 and 24 months.
On the surface, payment protection insurance sounds like an amazing deal. It prepares you for life’s unforeseen circumstances. However, in reality, it does not have a very good reputation. There are two ways to take out payment protection insurance. The first is purchasing a stand-alone policy. The second is taking out a PPI policy along with the loan. In the first option, it is obvious that the choice is yours. In the second, the choice is also supposed to be left to borrowers however; majority lenders have forced it upon their clients to pay for a PPI scheme. They do this under the pretext of obtaining better interest rates and as a prerequisite for the original loan. A few borrowers are not even aware that they are paying for payment protection insurance along with their original loan. It is hidden in the fine print.
Another problem with Payment Protection Insurance is the rate of rejection. Not everyone is eligible for payment protection insurance. It does not cover unemployment in cases of self-employed persons, students and senior retired persons. Lenders do not give policy holders adequate information on scheme details especially information on persons and events that are excluded from the coverage. Policy holders learn of the clauses and conditions only when they file a claim. This is a case of mis-sold payment protection insurance.
If you have been duped in a similar manner, you are eligible for PPI compensation. You claim a refund even after your loan has been paid off. Here’s a step-by-step guide to claim PPI compensation.
How to reclaim Mis-Sold Payment Protection Insurance
*The first step involves reading the loan agreement and paperwork carefully. This is to check if a PPI plan is added to your loan.
*The second step includes inquiring if you are eligible for the compensation. You can claim a refund on a current policy or on an expired policy that was purchased within the past 6 years. If the date of purchase dates back to more than six years, you can file a claim, but you will have to product original paperwork.
*You can file a PPI claim on the following grounds – PPI had to be purchased if you wanted a loan, you were not informed about conditions and exclusions such as being retired or self-employed, you were not informed that the policy will expire before you make the last debt payment and if the payment protection insurance was sold to you without your knowledge.
*Read through the documents and clauses once again to crosscheck that you are on the right path. If you are unsure about how to approach the matter, you seek help from a financial adviser specializing in PPI claims.
*The actual procedure starts from here. Send a letter to the lender or credit provider who mis-sold the policy to you. If the lender accepts the letter, you will receive a refund for your money. However, if the lender rejects your letter, you will have to approach the Financial Ombudsman Service. The Financial Ombudsman will evaluate your claim and handle the proceedings for you thereafter. This is a free service.
If you will borrow finance in future and choose to take out Payment Protection Insurance to secure it, tread carefully. Find out if there is a PPI policy attached to your original loan agreement. If not, shop around for a suitable policy. Factors you should consider include the amount of benefit, the time period for which you will be offered coverage, health and other exclusions and the price.