Which? uncovers PPI futility, asks consumers to look for better cover |
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Published
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Tue, 15 Mar 2005 01:00
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Which? The former Consumer Association seems to be quite unimpressed by the payment protection insurance (PPI) and is recommending customers to keep a safe distance from it while considering personal loans, credit cards and higher purchase agreements. Moneynet (a personal finance information site) revealed that PPI could add about £38 to a person’s monthly loan payments for a loan of £5,000 over five years.
Therefore, benefits attached to loans and cards like the PPI are deemed to be practically worthless, overpriced, therefore making the little that they offer almost negligible.
| Moreover, there are a series of conditions that apply to the provided cover which include a long waiting time, exclusions on important and common claims and limited payouts (only minimum monthly credit card repayment).
Basically, finance companies target the vulnerable consumer looking for insurance and then skillfully hand over low value products, positioning them as freebies with loans or credit cards. More often than not, unaware consumers comply with the offer, forgetting to read between the lines which claim added costs per month on the expiry of the offer in just a couple of months.
Furthermore, critical illness cover is very limited in the report since stress and back pain which form the crux of more than half of major sicknesses in Britain, do not fall under the cover bracket. What is particularly worrying is that the critical illness covers exceeded income protection by almost six times, despite the aforesaid shortcomings. This is due to the consumers being in the dark about the available alternative to critical illness insurance, the income protection policy. The income protection policy provides ample cover against the financial consequences of a non-fatal disability and is quite comprehensive. All you have to do is precisely define the involved risk in terms of your loss of income.
Which? accordingly suggests customers seeking income protection policies or permanent health insurance to evaluate all possibilities with a bank regarding their monthly commitments and repayments including council tax, utility bills, mortgage or rent. They should then confirm the kind of cover their employers are providing.
There are also a few ways of reducing the cost of the cover. For instance, postponing the start of an income protection plan until the expiration of the employer cover lowers monthly premiums significantly - from about £170 a month to £70 a month for a 33-year-old non-smoker looking to protect outgoings of around £2,500 a month.
Yet another way of cutting the cost of the cover was slashing the term of the policy. Also, income protection and permanent health insurance polices operate till the normal retirement age of 65 in the UK. Which? thereby suggested that people with pension plans could start before reaching that age to lower their monthly premiums.
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