Does Payment Protection Insurance Help Consumers?
How safe is your credit history if you can't make the payments
? This is an interesting question. Many consumers in the UK sought to protect themselves using an insurance instrument called Payment Protection Insurance. These policies were purchased, usually when buying real estate, automobiles and credit card services. To most, it seemed a wish safety net.In the UK, Payment Protection Insurance (PPI) was touted as personal protection just in case the consumer became unable to make their payments. It was said to be good in case of injury, illness, job termination, layoff, and even death in some cases. What was not told is how well it worked as a profit mechanism for the insurance providers and the companies that sold PPI to the UK public.
Anyone who has ever financed an automobile, or mortgaged a piece of real estate, knows meeting monthly payments do not always run smoothly. During the life of a loan, problems making the monthly payments can occur. When that happens, the size of the problem dictates how well a person's financial situation weathers the storm. Maintaining payments may have to be balanced against putting food on the table. PPI is supposed to help fill that gap.
Few people entering into financial contracts plan to run into financial problem. Yet, when PPI is offered under heavy pressure to buy at the point of purchase most consumers do not get the opportunity to shop around for better rates before making their purchase. In many cases, the purchasing process was stopped until the customer purchased Payment Protection Insurance at the same time they bought the other item they wanted.
According to the Financial Services Authority (FSA), a UK government agency, the lack of competition has created a highly profitable arrangement for the 12 largest distributions of (PPI) Payment Protection Insurance policies. These companies profited $1.4 Billion pounds in 2006, with a gross combined written premium (GWP) of 3.5 Billion pounds. This makes the selling of PPI's a very profitable insurance instrument.
Holders of these types of polices expected to receive the benefits of the product purchased. However, when claims were file for the purpose PPI was purchased, many claims were denied. Often consumers discovered the policy did not cover pre-existing illnesses and conditions. In addition, payments stopped after 12 to 24 months, leaving the policy holder to fall behind in payments.
Imagine the disappointment and anger among consumers as they watched their payments slip further and further behind, while their PPI policy received denied claims, one after another. Many policy holders discovered their policies stopped making payments after 12 to 24 months, without notice. Complaints flowed into the appropriate authorities at such a rate until an investigation revealed distributors had in fact bilked consumers out of billions of dollars. As a result, huge fine were levied against offending companies.
Even though fines and penalties have landed on offending companies; that is of little comfort to those who have already loss and suffered the emotional and financial damage. Payment Protection Insurance may sound like a great idea and it could be however; consumers have discovered purchasing such insurance is better done away from sellers of other products and services. It is also likely to be much cheaper.
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