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If you are taking out a loan or mortgage don't agree to purchase payment protection insurance (PPI) as part of the deal until you have considered your options.
Lenders routinely charge several times more than independent providers for PPI, the insurance which covers your repayments if you find yourself unable to work.
With a specialist provider you could pay as little as £3.35 per month per £100 of full accident sickness and unemployment cover, but lenders often charge £5 or £6 for the same cover with much of the difference being taken as commission.
Cash cow for lenders
For lenders it's a cash cow. For borrowers it's a rip-off. But many loan applicants wrongly believe they won't get their loan unless they take the insurance.
And most lenders are quite happy to let them think that ¢ despite a damning report from the OFT last year and an FSA crackdown that has seen several firms fined for mis-selling. Many of those who tick the box without checking the small print are paying through the nose for a policy they may never be able to claim on.
There has been some abuse within the PPI sector. But some recent press coverage has made the leap from damning dodgy sales practice and over-priced cover to dismissing the product itself.
PPI may not be appropriate for everyone taking out a loan or mortgage, but when sourced from an independent provider it can offer an invaluable financial lifeline at a very low price.
There is a world of difference between this approach and a tick in a box that could cost many times as much and ultimately leave you uncovered.
Here are comparative costs per £100 of monthly benefit for full accident sickness and unemployment PPI cover:
ASU direct - £3.35
Abbey - £6.04
Halifax BS - £5.94
HSBC - £5.94
Nationwide - £5.89
Paymentcare - £3.95
British Insurance
(Paymentshield) - £3.95
Source: Cassidy Davis. Correct at August 2007
