Loan payment protection insurance is the one of the products that comes under the umbrella term known as payment protection insurance (PPI). Loan protection provides a tax free monthly sum for people displaced from work due to involuntary redundancy, illness, or accident.
This insurance assists through monthly instalments over a benefit payout period of 12 to 24 months, depending on the policy terms and conditions.
While, in many cases, the loan insurance does not replace one hundred per cent of normal monthly income for the insured person – there is a set limit with all insurers - it does cover significant portion. The purpose of this cover is to help consumers faced with growing revolving debt and credit card debt, to meet their monthly loan obligations, even if their income is lost.
Loan payment protection insurance is often sold in combination with loan products by many banks and High Street lenders. This process has actually led to some common mis-selling practices, which have brought to light the advantages of buying payment protection on the open market through an independent broker, such as the ethical British Insurance.
Consumers have long been unfamiliar and unknowledgeable about the payment insurance industry because banks and High Street lenders have controlled the industry. These institutions have often pressured or deceived consumers into taking on their expensive premium products. Some lenders pressure borrowers into believing they have to buy payment protection to secure their desired loan. Others simply build the insurance premiums into the loan repayment to hide the expensive premiums. By doing this, they can spread the costs over time so they are less detectable to the borrower. Borrowers often pay thousands in premiums over time, without even realizing they are protected. Consumers need to read the fine print of disclosure documents.
Another mis-selling tactic employed by some sellers has been the selling of loan payment protection insurance to retired people, part time employees, and people with pre-existing medical conditions. All these groups are ineligible to receive benefit payouts based on plan exclusions.
Leading consumer advocate group, Citizen’s Advice, brought the aforementioned mis-selling practices before the Office of Fair Trading (OFT) recently through a super complaint. The complaint alleged that these selling tactics hindered fair competition in the payment insurance marketplace. As a result the OFT and Financial Services Authority (FSA) conducted investigations. The FSA concluded its investigation by imposing fines and sanctions on institutions it felt had used unfair selling. The OFT appointed the Competition Commission to further review the industry and is awaiting the report on its findings.
Despite, the negative press that the protection insurance industry has attracted, loan payment protection insurance is invaluable and will help Brits protect themselves. With the low cost opportunities for buying loan payment protection insurance presented by brokers such as British Insurance, there is no reason to avoid protection for oneself and his or her family.
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