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It has been claimed recently that when consumers take out a personal loan over the phone, they are being tricked into buying expensive payment protection insurance (PPI).
Consumer group Which? says that some providers add PPI routinely during a telephone sales process, with people not knowing that they are buying unsuitable or unnecessary insurance.
It was found by researchers that over half of the quotes by phone automatically included PPI, and online sales had the same results. There was only one provider that did not include PPI in their phone quote, and a few providers gave it as an option.
PPI covers people who can’t work through ill health or injury, and it is usually sold on the back of loans, credit cards and mortgages. In the UK it is estimated that 20m policies are currently active. Critics of PPI claim that it is sold to people who don’t need it; it is difficult to claim; and it is overpriced.
Which? says the Office of Fair Trading reckons that the payout value for PPI is only a fifth of the amount claimed for. As a comparison, for motor insurance the value is 82% and for household claims it is 54%. Thus, PPI represents poor value. PPI is not compulsory, and the Which? report suggests that income protection insurance is a better bet for most people.
Providers are very keen to sell PPI to consumers, despite its not being suitable in many cases. Its automatic addition in many cases fools people into believing that it is compulsory, or they may not even notice it has been added.
When people take out a loan, they should, of course, always read what they are paying for – check the small print! But they should double check for PPI – it is not compulsory, and if they don’t want it, they can ask for it to be removed.