Payment Protection Insurance (PPI)

The FLA supports the use of products that help to protect consumers from going into unaffordable debt. PPI is a good example of such a product.

PPI is designed to help consumers pay their debts should they have an accident, become ill or unemployed, or if they die. Consumers may buy PPI with most types of credit, such as hire purchase, a personal loan, a mortgage, a secured loan (a second mortgage on their home), a credit card or a store card.  

PPI will pay part (or all) of the repayments on the loan or credit agreement if they cannot work because they are ill, have an accident or lose their job. It can also pay a lump sum to their credit provider if they die before they have paid the amount owed.

PPI can usually be purchased from the company offering a credit agreement. There are also stand-alone providers in the market. 

The way consumers pay for their policy depends on the type of credit and where they buy their payment protection insurance. Credit card cover is usually paid monthly, so each payment buys cover for a single month. Mortgage protection cover is usually paid in the same way and is known as a regular premium product.

For some secured loans, providers may charge a single premium that is added to the amount borrowed. A single premium normally pays for PPI over the length of the loan or mortgage and consumers may have to pay interest at the same rate as their loan. The level of cover and the price stays the same throughout the policy.  

The provider cannot cancel the policy if the consumer misses a loan or premium payment.

If consumers have a credit agreement and they buy PPI at a later date, they will only be offered monthly cover, that is, a regular premium product. Consumers need to make sure they ask their insurance provider if the premium and cover are guaranteed to stay the same throughout the term of the credit agreement. 

If a draft Order proposed by the Competition Commission is passed in April 2011, from April 2012, consumers will no longer be able to buy PPI at the same time they purchase their credit product, at the point of sale.

Instead, they will have to return after 24 hours, or the lender will be able to contact the customer after seven days. The intention is to give consumers the chance to shop around. Single Premium PPI would also no longer be available to customers after April 2012.