Payment Protection Insurance ?A Financial Helpline in More Ways than One

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Millions of struggling households, all across the UK, have received unexpected windfalls of £3,000 ($5,000) in the form of payment protection insurance refunds. Most have used this money to clear their debts and financial commentators have stated that this is one of the reasons for helping to pull the UK out of recession. To date, the banks have refunded a staggering £12 billion ($20 billion) to borrowers who were mis-sold payment protection insurance.

When we take a loan from a creditor or a financial institution, we approach the process with a plan in mind. It covers the entire process right from the loan application to repayment. We decide on a repayment scheme that suits our interest and ability. However, sometimes, even a well-thought out plan falls flat. Sudden, unexpected incidents such as accidents and sickness disturb our repayment strategies. As we do not predict them at the start, we are not prepared to deal with them. The result – we default on loan payments repeatedly and earn a bad credit history.

Payment Protection Insurance (PPI)was introduced to help borrowers caught in such sticky situations. Unfortunately, it did not materialize as envisioned. Many lenders mis-sold policies to clients compelling them to shell out more in the bargain.

As a lay person, you might ask what a “Mis-sold PPI policy” means. You can find out in this short article, but before that here’s a brief on how PPI is supposed to cover outstanding debts for you.

An Introduction

Payment Protection Insurance is a type of insurance also knownas account cover, Accident, Sickness and Unemployment (ASU) insurance,loan repayment insurance and credit protection cover. The policy covers almost all types of debts including personal loans, car loans, credit card loans and mortgages.

Accident, sickness, unemployment or death compromises a person’s ability to make a scheduled payment towards the repayment of a loan. In such situations, an individual with a Payment Protection Insurance Policy can file a PPI claim. The insurance company will make the payments on your behalf for a certain period of time. The time duration for which the company will pay the loan installments on your behalf depends on the policy. This cover is offered for limited time duration, usually 12 months or 24 after which the borrower has to personally manage loan repayments.

The same rule applies for the amount it will pay. The nature of the policy decides whether the company with cover the entire loan payment or only a certain percentage of it. If the policy holder dies or becomes disabled (is thereby unable to work), the insurance company will cover the remainder of the loan.

How was a policy mis-sold to you?

Often people ask whether or not their case qualifies for a PPI reclaim. Given below is a list of situations that are usually considered to be cases of a mis-sold PPI policy.

·        If it was added to your borrowing without your knowledge or without asking you.

·        If the lender or the financial institution stated that purchasing Payment Protection Policy was compulsory. There is a difference between stating it as compulsory and stating it as a precondition for a mortgage. In the first, he will not advance the loan if you do not buy PPI. In the second option, the lender forces you to buy Payment Protection Insurance, but allows you an opportunity to choose to buy it from him or from another company as a measure to secure your mortgage.

·        If you were not informed how long coverage would last. There have been many cases when the policy expired beforethe debt could be cleared. Thus, the policy was useless and you weren’t eligible for cover.

·        If the company has not informed you about the special clauses. For example, students, retired persons and self employed individuals are not eligible for cover. If the company was aware of your occupational status when it sold you the PPI policy, it is a case of mis-selling.

·        Finally, if the policy was overpriced.

What next?

It is time to gather your paperwork and file a claim for PPI compensation. A claim can be made on an ongoing policy or one that has expired. You will need original paperwork to file a claim. If you have lost mortgage papers, you can contact your lender or bank. It might be difficult to obtain papers for mortgages more than 6 years old. Banks, financial institutions and lenders do not keep records of cases more than 6 years old; they are not liable for it.

You can complete the process on your own or seek help from a company offering such services. The first intimation is a letter to the lender requesting a refund. Should he reject the claim, you should use the free Financial Ombudsman service. It should be done within six months of rejection.

Jhon Dep

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