Is Payment Protection Insurance Suitable for me?

When most people take out a loan, they will find that the lender suggests that they take out payment protection insurance as well. Sometimes, this is a genuine attempt to make sure that you are covered for your payments if anything unexpected like redundancy, sickness or an accident should befall you. Sometimes, though, it is an opportunistic attempt to get some more money off you for what could be an inappropriate financial product. Some of the people who sell payment protection plans (PPP) are not specialists in the field and are likely to have only a passing acquaintance with the rules and terms of the policies they are selling. Thus, borrowers shouldn't take their 'advice' as gospel, and should make sure that they are certain as to what they are paying for, and are equipped to judge if it is suitable for them.

The Association of British Insurers (ABI) has a code, which is being replaced by the code belonging to the General Insurance Standards Council (GISC). This code requires sellers of PPPs to make sure as far as possible that their proposed policy is suitable to the resources and meets the needs of the prospective policyholder.

How does a seller determine that a policy is suitable? Well, they need to look at the information supplied by the prospective policyholder, but not to leave it at that. The seller needs to ask some specific questions to the borrower in order to determine suitability properly. The seller cannot cover all aspects of the borrower's financial and personal position, and is not expected to do so, but there is some relevant and pertinent information without which it is not possible to give a suitable product recommendation.

This would deal with the frequent problem of borrowers being sold insurance which they are not eligible for. An example of this would be the selling of a PPP to someone not 'actively working' when the sale is made. If a person is on sick leave when they buy a PPP, their claim will not be met, which could leave them in a particularly bad financial predicament. It's also possible that a director of a company, who is regarded as having sufficient information about the future of the company not to be eligible for redundancy protection, to be sold it anyway. All the insurer has to do if it is determined that they have made an unsuitable sale is to refund the premiums. That will not help if the borrower's house is at risk. The regulators' view is that claims should be met in these cases.

You need to make sure that you ask for all of the restrictions on the policy to be made clear to you at the time the insurance is bought. By the time you claim, it could be too late.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

© AskFinancially.com 2008

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