Life Insurance

Lorna Bourke: Loan insurance ban may not be the answer Citywire.co.uk

17.05.10

There is no doubt that the selling of Payment Protection Insurance has been a scandal and the banks and mortgage lenders have made vast profits by selling policies which are overpriced, complicated and full of exclusions which make it difficult to make a successful claim.

But while there was every reason to ban lump sum policies which were nothing but a ripoff, there is a real danger that banning all PPI policies sold alongside a mortgage or personal loan could result in borrowers having no protection at all.  This could mean homebuyers losing their homes if they are unable to meet repayments.

Payment Protection Insurance provides a regular monthly income, usually for one or two years, sufficient to meet loan repayments if the borrower is unable to pay due to sickness or unemployment.  The lump sum policies, which have now been banned, charged the monthly premiums up front in a single payment which was added to the loan.  Quite apart from the fact that these policies were massively overpriced, adding the premiums to the loan meant that the borrower paid even more because interest was charged on the premiums as well as the original borrowing.

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