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PAYMENT PROTECTION INSURANCE

Before reclaiming or cancelling PPI you should have a look at the following Notes and see what type of PPI you actually have. Always consider all the facts and figures before starting a claim.. Whatever you do Do Not Just Jump In without researching your own policy, and don’t be afraid to ask for help / advice on the forums on CAG.


There are basically 2 types of Payment protection Insurance policies.

1) Monthly Paid Premium (as used by most of the credit card companies) These policies should not be a big problem to cancel; normally they will cancel this type of policy if you write to them or Phone them. Of course if you consider that you have been mis sold this type of policy you can of course try and reclaim all the premiums that have been made, plus claim the interest on each payment at the Contractual Interest Rate.

2) Single Premium Policy (these are the biggest rip off ones) These policies are Paid for in full to the insurance company at the start of the policy. Most loan Companies will finance the full cost of the policy by adding the cost onto your loan. What they do not tell you is that you will also be paying interest on that amount at the loan interest rate for the full term of the loan.

Example 1. PPI Cost £3300 Interest Rate 7.9%APR Interest payable over the 5 year loan = £1300 Actual cost of PPI cover £ 4600.00

Example 2 PPI Cost £3300 Interest Rate 7.9%APR Interest payable over the 15 year loan = £3913.00 Actual Cost of 5yr PPI Cover £ 7213.00

As some loans have variable APR the costs used in the above examples could be in fact a lot higher.

Most of this type of Policy will cover you for 60 Months (5yrs) so beware if you have taken out one of these policies and have a loan which runs over the 5 year period. As in example 2 you would require a further 2 * 5yr PPI policies to cover the full loan period.

I did one calculation on an original loan of £17,000.00 , when the PPI was added and calculated to cover the 15yr period; with an APR at 7.9% fixed the actual cost to repay the loan was calculated at almost £55,000.00.

Cancelling a Single Payment Policy.
This can be a bit trickier than a standard monthly paid policy. These policies will offer a very small percentage of the premium should you just cancel it. An example of this is shown below. Their answer to this part is normally that the insurance premium pays more in the early stages of the loan as there is higher risk. (Yeah - higher risk to the lender and not the Customer)

£3300 policy which had been running for 3yrs, Refund of £97.00 if cancelled.

Some companies will state that the only way that you can cancel one of these policies is to refinance and settle the complete loan agreement with a new loan without PPI on the new loan. Some of the lenders will also try and fob you off with excuses like, you may not get a new loan at the same low %APR without PPI. Some will also state that you may not in fact be able to obtain a new loan from them at all; this of course is all scare tactics to try and make you change your mind about cancelling the loan etc. If your credit rating is not good then they will use this against you too.

In my own case I managed to obtain a new loan from another provider at a far better %APR (5.8%) rate without PPI, though they did really try and sell their PPI..lol. I also took out a stand alone PPI policy from an Independent provider at well under a tenth of the cost I was quoted from the new Lender. Personally I have nothing against PPI Insurance, in fact I think it is a good thing as long as it sold properly and not at an extortionate rate like it is by the major High Street Banks and Loan Companies.

3) Mis Sold Policy
The mis selling of these policies is a major concern not just for Consumer but in fact the FSA and the OFT are looking into this whole matter.


Have you been Mis-Sold PPI? (Some standard Conditions for PPI)

a) Payment Protection Insurance cannot be made a condition of obtaining a loan. (This is the most common reason for mis selling)
b) You are permantley resident within the United Kingdom
c) You are Over 18 and Under 65 at the commencement of your loan, and you will not reach the age of 70 during the insured term.
d) You are in Full time employment – Some policies define Full time employment as being working Over 16 Hours per week and that you have been in full time employment for at least 6 Months prior to the start date of the policy.
e) Pre Excisting Medical Conditions may also Invalidate your Policy
f) Some policies may cover if you are self employed.. Check your T & C first though.

Latest Additions to be added to above:

  • 1 You were not in work or self employed at the time of sale
  • 2 You were told that you had to take the PPI out at the same time as the loan or not at all
  • 3 You were not asked whether you had any other insurance which would cover the loan
  • 4 You were not told you could buy PPI elsewhere to cover the loan
  • 5 You were sold a policy which had age restrictions which you fell outside of
  • 6 You were led to believe that Payment Protection Insurance was compulsory
  • 7 You were told that you would stand more chance of getting the loan if you took the Payment Protection Insurance
  • 8 It was not explained to you that there were certain exclusions within the policy that could affect you
  • 9 You were pressured into buying the PPI
  • 10 You paid upfront for the PPI but it was not explained that there were some PPI policies where you could pay monthly
  • 11 Your PPI was an upfront premium and you repaid the loan early and received no refund
  • 12 You increased your loan and the PPI was increased automatically
  • 13 The Terms & Conditions of the small print were not fully explained to you


You should in the first instance read through the full terms and conditions of your Payment Protection Insurance Policy. If you do not have these I would personally advise you to contact the Insurer and request these. If you do have to contact the Insurer for a copy of the terms and conditions you will need to know the date that you signed up for the policy, Request a copy of the terms and conditions relating to the policy that they had in place on that date.

I would personally always deal with complaints regarding PPI by way of letter, unless you have the ability to record any telephone conversations regarding the complaint. Obviously should you have to take the complaint to court, the more evidence you have in writing the better.

Some Interesting Facts Regarding PPI.

On some Single premium PPI policies the actual cost for the insurance can be a low as 10% of the cost charged by the lender …That’s a whopping 90% straight profit for the lender.. Plus of course the extra Interest that they will make.

Out of all the types of Insurances Policies available ( Car, Home etc) PPI has the lowest percentage of payout in claims, Making PPI the most profitable Insurance Policy currently on the market.

Payment Protection Insurance has the highest rate of claims for Mis Selling than any other Insurance policy available.

Most policies will only pay out for 12 Months maximum in any 1 claim.



Reclaim your PPI premiums

There's no need to pay someone a fee to pursue your mis-selling claim. By following our guide - and using our letter template - you can right the wrongs committed by your bank or lender. You will find the downloadable letters at the bottom of this page.
Here we explain how to decide whether you have a case for reclaiming your premiums, and how to go about it:
The background
Payment protection insurance generates billions of pounds for banks and building societies and is widely recognised as being routinely mis-sold. The policies are designed to repay a particular debt if you find yourself out of work. We know of many instances when borrowers have been forced to buy an expensive policy as a condition of being offered a loan.


Do you have a mis-selling claim?

• Being forced to buy a PPI policy in conjunction with a loan does not breach FSA guidelines. But the FSA says that fact does not exclude borrowers from making a mis-selling complaint to the Financial Ombudsman, who assesses whether the way the policy was sold was fair and reasonable. Banks and lenders who subscribe to the Banking Code agree they will not force customers to also buy their payment protection insurance, but they can insist on them having some form of PPI. We have heard a litany of complaints from borrowers who say unscrupulous salespeople told them they would not get a loan unless they signed up to the lender's own protection insurance. If this has happened to you, you should pursue the bank through its usual complaints process. If you have no success, the next step is to complain the Financial Ombudsman.
• You may also have a case for mis-selling if you have been sold a policy while you are self-employed, unemployed or retired – all of which make PPI void. PPI policies are valid only for people who are employed by someone else and the lender or insurer should have checked your employment status when they sold the policy.
• Most policies do not cover you for loss of income caused by a wide range of illnesses or ailments, including mental illness and back trouble, which keep thousands of people off work each year. A lender or insurer should warn you that illnesses like these, and other pre-existing conditions that might keep you off work, will not be covered.
• If a lender sells you a PPI policy with a card or loan, it significantly increases the interest rate you will be paying. Lenders are obliged to advertise the total APR so you know exactly how much your monthly repayments – including insurance – will be. If they haven't, you can pursue them for mis-selling.

  • The lender should also have explained to you the full cost of the policy, and how your monthly repayments without insurance would be affected by adding insurance to the loan or credit card agreement.
  • If your lender did not do any of these things, you may have a claim for mis-selling.

Additionally, you may have a claim if you have tried to cancel your PPI policy, and have been refused, or if you have cancelled the policy part-way through the loan period and received a smaller reduction in monthly payments than you were expecting.


FOS Consumer Factsheet on PPI

See here

Template Letters

Template Letter 1


[10 brookman court smallcombe road paington devon tq3 3fw]
The Complaints Department
[Lender’s address]
[Date]>br>

Dear Sir/Madam,

Ref: [Your PPI policy number]

I believe I have been mis-sold a payment protection insurance policy and would like to request a full refund of my premiums, plus interest paid.

I took out a £xxx loan at your […. Branch] on [Date] and also bought a payment protection policy which would cost me an extra £xxx over the life of the loan. [The name of the salesperson who sold me the policy is ...] The total amount of my premiums plus interest is £ xxxx.

I am [self-employed/work as a contractor/unemployed/retired] and therefore will not be eligible for any payments from the PPI if I find myself unable to meet my debt repayments.

Possible additional paragraphs – include the one which applies


[Your salesperson knew this at the time of sale but did not point out to me that this would make the insurance policy useless to me.]


or

[Your salesperson did not check my personal circumstances at the time of sale, which they are under obligation to do. If they had done, they would have realised that a PPI policy was useless to me.]


Insurers are under an obligation to ensure that the policy they are selling is appropriate to that customer and clearly, as my employment situation means I am unable to claim on the policy, you have not fulfilled this requirement.

I am requesting a full refund of all my insurance payments, plus interest, which total [£ xxx].

If I do not receive a favourable response from you I will pursue this claim through the Financial Ombudsman.

Yours sincerely


[Your signature]




Template Letter 2


[Your address]
The Complaints Department
[Lender’s address]
[Date]

Dear Sir/Madam,

Ref – policy number

I believe I have been mis-sold a payment protection insurance policy and would like to request a full refund of my premiums, plus interest paid.

I took out a £xxx loan/credit card at your [branch name] branch on [date] and also bought a payment protection policy which would cost me an extra £xxx over the life of the loan. [The name of the salesperson who sold me the policy is …] The total amount of my premiums plus interest is £ xxxx.

When I took out the loan, I was told that my application would be refused if I did not also buy a PPI policy. The Financial Services Authority’s advice to consumers is that, while it does not breach FSA guidelines, a borrower should not be refused a loan if they choose not to buy an insurance policy.

Possible additional paragraphs – include any which apply to you


[I also told your salesperson that I had adequate insurance cover through a separate income protection policy.]

[I said I did not need the PPI as my employer provides a generous illness and redundancy package.]

[You are not allowed to make PPI a condition of taking out the loan unless you include the costs of PPI in the quoted interest rate, which you did not do.]

[In forcing me to buy this policy, you have also breached paragraph 8.6 of the Banking Code, to which you are a signatory.]

I do not believe being forced to buy this policy as part of the loan was a fair and reasonable obligation as I did not need this insurance and said at the time of taking the loan that I did not want it.


I am requesting a full refund of all my insurance payments, plus interest, which total [£ xxx].

If I do not receive a favourable response from you I will pursue this claim through the Financial Ombudsman.

Yours faithfully,

[Your signature]

Related Pages

PPI: Documents for Bundle

PPI: Particulars of Claim

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