Regular PPI as expensive as single premium
03 June 2009
Which? has found regular premium payment protection insurance (PPI) with unsecured loans that costs as much as single premium PPI.
Most unsecured loan providers have stopped selling single premium PPI at the insistence of the Financial Services Authority (FSA) and ahead of the Competition Commission ban* but Which? research shows that some regular premium policies are now just as expensive.
For example, taking out a £5,000 Alliance & Leicester loan with regular premium PPI now costs the same as it would have done with single premium PPI in November 2008.
Unlike single premium PPI, regular premium policies aren’t added on to the value of the loan so borrowers don’t pay interest on them, which should make them cheaper. Although regular premium PPI can be cancelled more easily and should make it easier to switch provider, insurers are free to increase premiums and reduce cover by giving policyholders 30 day’s notice.
Which? recommends that consumers get independent financial advice to find out which type of cover best suits their needs.
Which? personal finance campaigner, Lucy Widenka, says:
“How disappointing that some lenders appear set against offering value-for-money cover. Making regular premium PPI as expensive as single premium PPI makes lenders look as determined to make a certain amount of money from people, whatever they may be selling.
“To avoid a bad deal, consult an independent financial adviser about your overall financial protection needs and shop around before committing to anything.”
Notes to Editor
*The FSA told all lenders to stop selling single premium PPI by the end of May 2009 ahead of the Competition Commission ban on the product starting in 2010.
** According to Moneyfacts, adding single premium PPI on to a £5,000 loan repaid over 3 years at 8.9 per cent APR from Alliance & Leicester added £1,016 to the cost of the loan in November 2008. According to the FSA, the same loan from Alliance & Leicester at the same rate with a regular premium PPI in May 2009 costs the same.
Some of the key decisions from the Commission:
- Banning the sale of single premium policies
- Prohibiting the sale of PPI by the credit provider within 7 days of the sale of the credit
- Credit providers have to give consumers a personal PPI quote which states the cost of the insurance on its own and when added to the credit product
- The provision of an annual statement to all PPI customers reminding them that they can cancel the policy. The statement has to be sent separately from the credit statement
- Solutions for making advertising clearer
- Obligatory information provision to the FSA for publication in their PPI comparison tables and on annual GWP (Gross Written Premium) and claims ratios to the OFT
This table shows how much regular premium PPI costs to cover a male 38 year old, UK resident for an unsecured loan, 3 years £5,000 or £158 monthly payment, 35 hours worked per week, not self-employed, in permanent employment.
| With Unsecured Loan | |||||||
|---|---|---|---|---|---|---|---|
| Provider | Name of PPI policy | Max No. of Payments AS | Max No. of Payments U | Waiting Period AS (days) | Waiting Period U (days) | Mthly Premium (£) | Total Premium (£) |
| The AA (FSA) | Creditcare (Phone) | 12 | 12 | 15 | 30 | 36.08 | 1298.88 |
| The AA (FSA) | Creditcare (Online) | 12 | 12 | 15 | 30 | 35.7 | 1285.2 |
| Alliance & Leicester (FSA) | Loan Repayment Insurance (Branch) | 60 | 18 | 14 | 14 | 30.78 | 1108.08 |
| Alliance & Leicester (FSA) | Loan Repayment Insurance (Online and Phone) | 60 | 18 | 14 | 14 | 28.21 | 1015.56 |
| Bank of Ireland (FSA) | Fixed Rate Loan Payment Protection | Term | 6 | 0 | 30 | 19.49 | 701.64 |
| Blackhorse | Payment Protection Plan | 24 | 12 | 30 | 30 | 25.03 | 901.08 |
| Tesco (FSA) | Standard Cover | 12 | 12 | 14 | 14 | 23.07 | 830.52 |
| Tesco (FSA) | Total Cover | 12 | 12 | 14 | 14 | 29.67 | 1068.12 |
Table notes
- A limited selection of information taken from the FSA's Comparative Tables (www.fsa.gov.uk/tables) as at 28th May 2009 apart from Blackhorse from website 1st June 2009. © The Financial Services Authority
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