subject: Single Premium Policies Examined [print this page] Single Premium Policies Examined Single Premium Policies Examined
If you were to fall sick or have an accident that meant you were unable to work, or were made unemployed, would you be able to cover your loan, credit and store card repayments? You may be one of the lucky few that have the funds to repay your debts if the worse was to happen, but if you are like the majority, you won't. This is where Payment Protection Insurance (PPI) is supposed to step in to cover the necessary costs.
PPI came in two forms, single premium and monthly premium. Monthly premium policies were paid out each month as part of the loan repayments, whereas Single premium policies were paid for up front, with the lump sum often being added to the loan amount. This was not a good thing for consumers and many were mis-sold.
With single premium policies being added to the loan at the start, customers then had to pay interest on the insurance as part of the loan. With PPI premiums costing anything up to 70% of the loan, this significantly increased the amount customers were obliged to pay back.
Those that managed to pay back their loan early did not fare any better because the initial payment covered the original fixed repayment time of the loan, so customers were paying for something that they no longer needed. Lenders very rarely informed customers that they were entitled to a refund of this money, or put terms and conditions in to avoid this.
But far worse was where the opposite happened and towards the end of the loan period, the single premium PPI policy ran out as it was provided for a fixed time period, not related to length of the loan. This meant that customers were left without protection for their repayments, many without even knowing!
The FSA has been aware of PPI mis-selling for some time, especially related to single premium policies. They have fined a number of financial institutions in relation to their sales practices and even wrote to all banks in February 2009 telling them to stop selling single premium PPI. The Banks have heeded this warning and stopped selling single premium PPI, with some taking this a step further and stopping selling PPI completely.
