Today’s tough economic conditions often make it necessary for people to take out a huge loan or even mortgage some their assets to get the necessary funds for other immediate needs.
However, more often than not, the burden of taking a loan is accompanied by the greater burden of ensuring its timely repayment. PPI or Payment Protection Insurance is an insurance scheme designed to help customers to insure the payment of loans in case the borrower is incapable of returning the money due to various reasons, including death, disability, illness or even unemployment of the borrower.
Some Basic Facts About PPI
PPI is generally offered as a part of the deal to customers seeking a loan from a bank or other credit providing organizations.
However, it is advisable for the consumers to first establish whether or not they really need a PPI policy along with their loan as these can turn out to be quite expensive. It can prove to be a big financial burden and might not be affordable for everyone.
Despite the high costs of taking out payment protection insurance, they offer some great benefits which make them equally alluring. The most important of these are listed below.
- Taking out a PPI policy ensures great peace of mind, when the borrowers are already struggling with their finances.
- People can use the insurance money to cover their household expenses especially when they are incapable of having a regular income.
- Since the PPI claims are free from all taxes, the policy holders can get the entire amount claimed which can prove highly beneficial.
Mis-Selling Of PPI
In the recent years there has been a significant rise in the cases of mis-sold PPI claims not only by various private money lending institutions but also by a majority of banks.
In most cases the customers were either unaware that they were being sold a PPI policy or were forced to take out the policy to get the loan sanctioned. According to a survey, most such customers were not only unaware of the existence of such policy but also did not ask for it or even have any real need for the same.
There have also been other complaints, where the customers claim to have been informed about the PPI policy but not sufficiently enough to make them understand its necessity or even how it worked and how they would benefit from the same. In such cases, the customers often ended up buying the policies without actually evaluating whether or not it would suit them or would not create further financial stress for them.
In view of the increasing complaints about mis-sold PPI , the PPI have been facing severe criticism. The policy was originally designed as a method of protecting people truly incapable of repaying the loans due to various reasons. But sadly, today, it has been developed into a tool to earn greater profits by the various financial institutions.
This is not only affecting the validity of the PPI but also making many people who need are in genuine need of help avoid seeking PPI claim funds for the fear of being drawn into a long and messy dispute.
An Approximate Total Value Of –Mis-Sold PPI
The extent of misuse of PPI claims by banks and other financial institutions can be ascertained from the fact that in the UK alone, banks were penalized to pay a sum of £4.5 billion to customers who were mis-sold the policy.
A major UK bank is believed to have made a profit margin of no less than 80% by selling PPI policies worth £400m to its customers as a part of their various financial products. In another similar incident, Alliance and Leicester, a major financial institution was fined £7m for being a part of the PPI mis-selling conspiracy.
Many experts believe that what led banks and other financial institutions misuse the policy to this extent was not only the desire of earning easy profits but also sustaining their own financial security. This is why they used every means to convince and in some cases even coerce people to buy PPI despite being aware that most of the customers would actually not need them. In their zealousness to sell the policy to a greater number of customers the financial institutions even overlooked the pre-defined conditions for the sale of PPI, which often left the borrowers haggling at the time of making claims.
Not Becoming A Victim Of PPI Mis-Selling
Customers seeking a loan need to be extremely careful and well aware so as not to become a victim of PPI mis-selling. This is especially true for people with limited resources for loan repayment. Given below are some guidelines that prospective loan seekers can follow to prevent from being sold the PPI policy in a wrong manner.
- It is extremely important that people buying any financial product check and cross-check the documents to learn whether or not they would also be expected to buy a PPI policy. Most people make the mistake of not going through the details provided in fine print on the documents as this is generally the place where all important details such as the clauses of the loan agreement, hidden costs and PPI referrals are placed.
- In case the financial institution offers prospective customers with the option of buying a PPI policy, they should seek some time to gain further knowledge about the details of the policy, in addition to its cost, premium amount and the other benefits that it would offer. It is also advisable to gain information about the pre-defined clauses for making PPI claims as the policies do not cover all disabilities and unemployment types.
- In case the loan seekers have any doubts about the policy guidelines or even their relevance with respect to the financial product they intend to buy, it is always advisable to pester the concerned person until they provide a satisfactory answer. Buying a PPI policy just because the loan officer advised so, can prove detrimental in more than one way. As such it is always better to analyze the pros and cons of buying PPI prior to signing the agreement.
PPI if used in the right manner can go a long way in helping solve the financial woes of many physically challenged and unemployed people. However, for that both the government and loan seekers need to make conscious efforts to stop its misuse by financial institutions.