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Payment Protection Insurance - who needs it?

We put the most controversial form of insurance under the microscope...

Unless you’ve been disconnected from the internet and telephone line, have no radio or TV, and don’t ever go anywhere near a newspaper, you can’t have failed to have heard of Payment Protection Insurance or its snappy acronym, PPI. Once a mundane part of taking out a loan or credit card, this is now possibly the most hated of all insurance products. But why did the banks ever offer it to us, if they have now landed in such hot water over it?

The concept behind Payment Protection Insurance is a simple one. If you take out a form of borrowing, such as a loan, you need to be able to pay it back - it’s your part of the bargain for being granted access to the funds. But if you’re suddenly unable to work through illness or injury, you might find it difficult to make your repayments. In such circumstances, a PPI policy would cover you, making the payments on your behalf for a certain period so you would be able to get back on your feet and earn enough to take over the repayments yourself.

It seems straightforward and practical; after all, if a bank has lent you money, it needs to be sure that its repayments will be forthcoming. However, problems started to arise when PPI was quietly included in the conditions for taking out a bank loan. Taking a loan out can be stressful; in the torrent of terms, conditions and general financial jargon - sometimes delivered by bank call centre staff with the speed of a rap artist - it was easy for applicants to miss the fact that they were effectively being up-sold a new product without asking for it or being consulted on it. In many cases, PPI made the lenders more money than the interests on the loans themselves.

Of course, the lid has been well and truly lifted on this particularly shady piece of bank practice, and the offending institutions have been duly brought to task and fined accordingly. But how well are they handling the consequences? Click here to find out...

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