Payment protection insurance (PPI) used to be widely sold alongside financial products that you need to make repayments on, such as a credit card, loan or mortgage, often to people it wasn’t suitable for.
It’s designed to cover repayments if you’re made redundant, or unable to work due to an accident or illness. However, while still available, this type of insurance cover is considered controversial after the financial regulator the Financial Conduct Authority (FCA) found that it was often mis-sold to customers who wouldn’t have been able to claim, for example, or were unaware it wasn’t compulsory.
Around 64m PPI policies have been sold in the UK, according to theFCA, with the majority bought between 1990 and 2010.Billions of pounds worth of compensation has been paid out to mis-sold customers over the past decade.
Here we look at how PPI works, the scandal surrounding this type of policy, and whether you can still make a claim if you’ve been mis-sold.
What is Payment Protection Insurance (PPI)?
PPI is designed to ensure you can keep up with repayments on debt such as loans and credit cards for a short time period if you’re unable to work because you’ve suffered an illness, accident, been made redundant, or passed away.
Bank and insurers previously sold PPI alongside credit agreements such as:
- Personal, business and student loans.
- Credit cards.
- Store cards.
- Catalogue debts.
- Mortgages.
- Overdrafts.
- Car finance or finance agreements taken out to buy a particular item, such as a sofa.
PPI policies typically cover just one specific debt, such as single loan repayments, with payouts directly meeting repayments, and unable to be used for any other reason.
It’s still possible to buy a “stand-alone” PPI policy from an insurer, but previously most policies were sold to borrowers as part of a package alongside a financial product.
What happened with PPI mis-selling?
Chances are you’ve heard about PPI mis-selling, and the billions of pounds paid out to consumers who have received compensation.
The mis-selling scandal gradually unfolded after the Financial Services Authority (FSA) (now the Financial Conduct Authority) took over responsibility for the regulation of sales of general insurance in 2005. Until then, sales of insurance policies had been self-regulated.
The FCA found that banks and lenders were selling PPI to customers without explaining what it covered or whether it was suitable for them, or providers added it without consent, or stated it was a compulsory part of the customer’s loan, credit card, or mortgage policy, when this wasn’t true. In some cases, banks or insurers earned commission from selling PPI, but didn’t tell customers this when they bought the policy.
It took years for the full scale of PPI mis-selling to be exposed, with banks starting to pay compensation in 2011. Since then, more than £33bn has been paid back to consumers who complained about the sale of PPI. The average claim was about £2,000, although some people received far more.
There were many circumstances around how PPI was sold which enabled policyholders to claim a payout. For example, people may have been entitled to their money back if they didn’t know they were buying PPI, they were told they had to buy a policy, the terms didn’t cover their personal circumstances, or they actually didn’t need this insurance cover.
Can you still claim for mis-sold PPI?
The deadline to complain about the sale of PPI was 29 August 2019 so the majority of people can no longer submit a PPI claim. However, you may still be able to claim if you missed the deadline because of ‘exceptional circumstances’. There is no exact definition of an exceptional circumstance, but being seriously ill for months around the time of the deadline, for example, may count.
The FCA details examples of potential exceptional circumstances here. However, before submitting a claim, get in touch with the provider to talk about your particular circumstances. If you get nowhere and still believe you should receive compensation, it may be worth getting in touch with the Financial Ombudsman Service.
If you’ve missed the deadline and want to make a PPI complaint, another option may be the small claims court. Bear in mind that there’s no guarantee this will result in compensation, and getting a payout could be difficult.
Other types of insurance to consider
If you’re worried about how you’d cope financially if you were unable to work due to ill health or an accident, it may be worth considering other types of insurance policies.
For example, income protection insurance may provide you with a regular income if you cannot work because you’ve suffered an accident, injury, or you’re unwell. Find out more in our article income protection explained. Another form of insurance you might want to look at is critical illness insurance, which provides a tax-free lump sum if you’re diagnosed with a serious illness covered by your policy which could be used to pay bills and support dependants. Read more in our article Everything you need to know about critical illness cover.