Payment Protection Insurance

nemo183

Ignoring, for a moment, the huge cost of this and the difficulty of ever claiming it, it might be worth considering how it's charged for.

Just to make the figures easy, say you borrow £20,000 over ten years. Suppose the PPI is £30 per month. What most people don't realise is that the lender takes the £30 per month, and calculates the amount over 10 years - ie £30 x 12 x 10 = £3600.

They then add this to your loan, so that you borrow £23600 - i.e. you pay interest, from the start, on the complete "rolled up" insurance of £3600.

Unreal.....

Astaroth

Well, rather a heavy assumption there when you just pick a monthly amount out the air.

As with all insurance it is a risk transfer mechanism... you pay a fixed monthly amount to ensure that if the worst happens you arent hit hard by it.

You could of cause be diagnosed with terminal cancer after the 30 day exclusion period of which you had no idea about in which case after paying only £30 your insurance writes off the complete debt... not that anyone would want terminal cancer but £30 for £20,000 isnt bad

crossleydd42

You don't have to take out PPI with the lender - there are other companies which will give you this insurance..and cheaper. But ignorance and inertia selling means that most do. But we MLE's know better, don't we?

regularsaver1

i've seen people come in the bank and say

I have a mortgage/loan with you - i've lost my job/i'm ill what are you going to do for me = but they didn't take any insurance either with the bank or any other means. what are the bank supposed to do here?

nemo183

Astaroth wrote:

Well, rather a heavy assumption there when you just pick a monthly amount out the air.

As with all insurance it is a risk transfer mechanism... you pay a fixed monthly amount to ensure that if the worst happens you arent hit hard by it.

You could of cause be diagnosed with terminal cancer after the 30 day exclusion period of which you had no idea about in which case after paying only £30 your insurance writes off the complete debt... not that anyone would want terminal cancer but £30 for £20,000 isnt bad

I think I see your point, but what I object to is all the monthly loan insurance amounts being bundled up into one charge, and then being added to the loan, so that you are charged interest on the total bundled monthly insurance, for the duration of the period of the loan, from the start of the loan.

This seems to me to be just a ploy to collect the whole PPI upfront - so that if your personal circumstances change, so that you have no chance of collecting on the insurance, you also have no chance of cancelling it. Plus, of course, you are paying loan rates on the "rolled up" total of the insurance for the duration of the loan.

On the whole, this isn't fair. If your circumstances change during the loan period, why on earth shouldn't you be able to cancel the worthless insurance?

Astaroth

Different banks/ insurers have different ways of paying for the PPI - some you pay for a full term policy up front and with others you pay for monthly cover on a rolling basis.

As crossleydd42 says... you always have the option of taking out PPI elsewhere rather than with the lenders recommended supplier

110frankie

All that is needed is a simple rule to say that people taking out a loan should have the fact that that they can take it out elsewhere explained to them, not just in the small print.
I take the point earlier about cancer - not something anyone wants - but I have to say that I was very grateful for ppi when I had a series of heart attacks some years ago. I even made a profit as I was paid my full wage!!

Astaroth

PPI is like any insurance though... you think it is great when you have it and something does go wrong and it protects you but is a waste of money when you come to the end of the policy and you havent had to claim.

Insurance is considered a destress purchase - you dont really buy it because you want it - which is why there are so few policies with lots of nice bells and whistles because 99% of people just want the cheapest premiums - this is probably even more true for insurance which isnt compulsary.

nemo183

Astaroth wrote:

PPI is like any insurance though... you think it is great when you have it and something does go wrong and it protects you but is a waste of money when you come to the end of the policy and you havent had to claim.

Insurance is considered a destress purchase - you dont really buy it because you want it - which is why there are so few policies with lots of nice bells and whistles because 99% of people just want the cheapest premiums - this is probably even more true for insurance which isnt compulsary.

Excellent that we have different views on this kind of product, as it allows a good debate. As it happens, we seem to differ on just about everything! My point of view is:

PPI is not like any other kind of insurance. Why?
a) It is often bundled with a loan, and the loan may be contingent
on taking out the PPI.
b) It is often mis-sold to, for example, to either people who are sole
traders or self employed - and stand no chance of making a claim.
c) Policy wording is often confusing.
d) PPI profit margins are massive compared with other types of
insurance - it is not a competitive market - yet.
e) I have no problem with any other form of insurance. I pays me
money, and I hopes I don't need to claim. But I do have a very clear
understanding of what I'm covered for. With PPI, there seems to be
a pattern of insurers attempting to avoid paying out at any cost.

In summary, unlike just about any other form of insurance, PPI policies seem to have terms that are confusing, generate massive margins for the seller, and are frequently mis-sold with no mechanism for redress. The only similar product that they seem to compare with are those extended warrantees sold by electrical retailers - and you may remember that it's not so long ago that one high street retailer not only made more profit from insurance than margin on goods, and shortly after had the benefit of a full OFT investigation into the matter.....

In my opinion, PPI is one of the last bastions of unregulated opportunities for lenders to make a charge for a product that bears little relationship to the actual risk they accept. A fact which a quick trawl through the web would seem to support.....

Whilst I respect your view, I must admit I've never met anyone who is as enthusiastic as you are about PPI........

Astaroth

Personally.... wouldnt touch PPI with a barge pole for my own credit due to my personal circumstances not fitting the requirements but that isnt to say that the product is inherintly bad either.

A) Most the time they will try and cross sell the protection with the loan yes, in the same way that if you buy motor insurance they will often try and cross sell rescue or legal protection. Like how some insurers bundle up their motor policies so you have to take all or none there are some lenders that will force a customer to take PPI if they take the loan with them.... of cause this is the big if because the borrower could simply go to another lender who doesnt require this if they do not want PPI

b) Most policies I have seen, and certainly all of ours, do cover self employed people - though claiming is generally more difficult as whether the person is working or not they are typically still drawing money from the company. I do however agree that there has been a much too high rate of miss selling of this class of insurance. My personal favourit was when our banking division sold a policy to a 85 year old homeless man (on a £10,000 loan)

c) The wording of modern policies tends to be as clear as other classes of business (home, motor etc). The difference with PPI is that you have many people who still have their mortgage and PPI from 20 years ago when the wording of all insurance policies was much more difficult to understand

d) Yes the profit margins are higher than some other classes of business - particularly motor which is currently making a loss as an industry - but it is not the highest. There are a significant number of third party providers of PPI, the fact that customers dont choose to shop arouind cant really be blamed on the product itself.

e) Some would say that that pattern exists for all insurers and all classes of business. Having never actually bought PPI for myself the only experience of "real" claims handling for PPI is from when my partner used to work in loans & mortgages claim department for an insurer and to be honest they seemed to do everything they could to actually pay claims (including ones which were clearly not covered by the policy)

PPI is regulated by the FSA/ FOS and so isnt in the same boat as warrenties. At the moment of cause there is the super complaint going on about PPI and most insurers are very much trying to get their ship in shape to avoid any fines from this so for those that buy PPI in the future things should improve... personally, will stick with taking the risk for now

Tootsie_Roll

nemo183 wrote:

PPI is not like any other kind of insurance. Why?

You pay a premium and it pays out if you qualify - how is this different ?

nemo183 wrote:

a) It is often bundled with a loan, and the loan may be contingent on taking out the PPI.

I have heard this a lot just never experienced it after working nearly 20 years in retail banking.

nemo183 wrote:

b) It is often mis-sold to, for example, to either people who are sole traders or self employed - and stand no chance of making a claim.

A very common misconception, whilst it is sometimes difficult (but not always impossible) for self employed people to claim under the unemployment part there is still the death, accident and sickness part that is applicable.

nemo183 wrote:

c) Policy wording is often confusing.

Most companies now participate in the Plain English campaign so don't agree.

nemo183 wrote:

d) PPI profit margins are massive compared with other types of insurance - it is not a competitive market - yet.

Possibly true. Buyer apathy and limited information to blame here.

nemo183 wrote:

e) I have no problem with any other form of insurance. I pays me money, and I hopes I don't need to claim. But I do have a very clear
understanding of what I'm covered for. With PPI, there seems to be a pattern of insurers attempting to avoid paying out at any cost.

Another very popular misconception. Try working in the debt recovery department for a bank and see how many claims are made each month. Without it these people would be in serious arrears and could wreck their good credit rating just for a short period of illness or unemployment. When you see evidence like this it's a good case for making it compulsary like car insurance.