What is PAYMENT PROTECTION INSURANCE? What does PAYMENT PROTECTION INSURANCE mean?



What is PAYMENT PROTECTION INSURANCE? What does PAYMENT PROTECTION INSURANCE mean? PAYMENT PROTECTION INSURANCE meaning – PAYMENT PROTECTION INSURANCE definition – PAYMENT PROTECTION INSURANCE explanation.

Source: Wikipedia.org article, adapted under https://creativecommons.org/licenses/by-sa/3.0/ license.

Payment protection insurance (PPI), also known as credit insurance, credit protection insurance, or loan repayment insurance, is an insurance product that enables consumers to ensure repayment of credit if the borrower dies, becomes ill or disabled, loses a job, or faces other circumstances that may prevent them from earning income to service the debt. It is not to be confused with income protection insurance, which is not specific to a debt but covers any income. PPI was widely sold by banks and other credit providers as an add-on to the loan or overdraft product.

Credit insurance can be purchased to insure all kinds of consumer loans including car loans, loans from finance companies, and home mortgage borrowing. Credit card agreements may include a form of PPI cover as standard. Policies are also available to cover specific categories of risk, e.g. credit life insurance, credit disability insurance, and credit accident insurance.

PPI usually covers payments for a finite period (typically 12 months). For loans or mortgages this may be the entire monthly payment, for credit cards it is typically the minimum monthly payment. After this point the borrower must find other means to repay the debt, although some policies repay the debt in full if you are unable to return to work or are diagnosed with a critical illness. The period covered by insurance is typically long enough for most people to start working again and earn enough to service their debt. PPI is different from other types of insurance such as home insurance, in that it can be quite difficult to determine if it is right for a person or not. Careful assessment of what would happen if a person became unemployed would need to be considered, as payments in lieu of notice (for example) may render a claim ineligible despite the insured person being genuinely unemployed. In this case, the approach taken by PPI insurers is consistent with that taken by the Benefits Agency in respect of unemployment benefits.

Most PPI policies are not sought out by consumers. In some cases, consumers claim to be unaware that they even have the insurance. In sales connected to loans, products were often promoted by commission based telesales departments. Fear of losing the loan was exploited, as the product was effectively cited as an element of underwriting. Any attention to suitability was likely to be minimal, if it existed at all. In all types of insurance some claims are accepted and some are rejected. Notably, in the case of PPI, the number of rejected claims is high compared to other types of insurance. In the rare cases where the customer is not prompted or pushed towards a policy,but seek it out,may have little recourse if and when a policy does not benefit them.

As PPI is designed to cover repayments on loans and credit cards, most loan and credit card companies sell the product at the same time as they sell the credit product. By May 2008, 20 million PPI policies existed in the UK with a further increase of 7 million policies a year being purchased thereafter. Surveys show that 40% of policyholders claim to be unaware that they had a policy.

“PPI was mis-sold and complaints about it mishandled on an industrial scale for well over a decade.” with this mis-selling being carried out by not only the banks or providers, but also by third party brokers. The sale of such policies was typically encouraged by large commissions, as the insurance would commonly make the bank/provider more money than the interest on the original loan, such that many mainstream personal loan providers made little or no profit on the loans themselves; all or almost all profit was derived from PPI commission and profit share.

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