I just bought my first property on my own, and my broker has followed up saying I should buy mortgage payment protection insurance. It is understandable that you would be wary about buying anything labelled payment protection insurance, or PPI.
Mortgage payment protection insurance, however, is a different beast — and could be quite a valuable policy to hold. There are a few different types — you could get a policy that pays out only if you become unemployed, one that pays out if you get ill or injured accident and sickness policies , or one that pays out for any of these events. If you need to make a claim, you will be paid a fixed amount on a monthly basis to cover your mortgage repayments, usually for around two years.
You could set your payouts to cover other bills — if you do so, the maximum payout you can expect to get is around per cent of your mortgage costs. Alternatively, you can set your payout as a percentage of your salary — this is usually capped at 50 per cent. The downside of mortgage payment protection is that it may not cover all your needs. If you were ill or unemployed for more than two years, you will not get further payouts. In this instance, an income protection policy may be more suitable.
These require a medical assessment, and can be more expensive than a mortgage-linked policy. Now that the City watchdog has extended the claims deadline those annoying PPI calls are unlikely to stop anytime soon. Neither are the bank payouts. The City regulator, the Financial Conduct Authority, has announced a June deadline for customers to make claims for the mis-selling of payment protection insurance PPI. The FCA says imposing a deadline would allow banks to draw a line under the PPI scandal, which has been dragging on for years.
PPI has been sold alongside mortgages, credit cards and other unsecured loans since the s. It was supposed to cover payments on loans if customers fell ill or lost their jobs. In , the Guardian reported how Barclays had been making profits from PPI and other examples quickly followed.
Selling PPI was very profitable for banks. The consumer panel, which represents consumer interests at the FCA, questioned the deadline. Borrowers must be given a personalised quote, detailing costs and cover.
Customers had to be told in writing that PPI was an optional extra. PPI sellers had to state how many customers were successful in claiming on their policies. The banking industry argued that it was unfair to expect it to impose these new standards retrospectively.
The issue came to court in January, when the British Banking Association BBA launched a judicial review in the hope of establishing this point, but in April it suffered a landmark defeat at the high court. This ruling forced the banks to reopen thousands of claims for PPI mis-selling , and also trawl through their past PPI sales to find customers who deserved compensation.
The BBA had been considering whether to appeal against this ruling, but Lloyds has now decided to withdraw and simply start paying out. How the PPI scandal unfolded. Britain's banks have been aggressively selling 'ineffective and inefficient' — but highly profitable — payment protection insurance for more than a decade.
PPI mis-selling: Vince Cable then Lib Dem Treasury spokesman demanded an investigation into 'inflated premiums and anti-competitive behaviour'. Photo: Reuters.
The charge sheet against PPI was fourfold. It stated: PPI could not be sold until at least seven days after the loan was agreed.
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