Cancelling your PPI policy

Payment protection insurance - if you’re having a change, it might be time to cancel that old policy.

If you took out payment protection insurance (PPI) without understanding the pros and cons, then it may have been mis-sold to you.

However, even if you understood what you were signing up to, you don't have to keep the PPI if you are now having second thoughts. We think PPI is usually a poor deal, and that many people can get better protection without paying a lot more.

How to cancel

If you’re really sure you don’t need the insurance, it’s easy to cancel it. Everyone has a legal right to cancel a policy within either 14 or 30 days of the start date (depending on the terms), but you can still cancel the policy even if you have kept it beyond this period.

Cancelling monthly PPI

If you have a monthly policy (most PPI policies attached to mortgages and credit or store cards are monthly), you can cancel your policy at anytime and you won’t incur any further costs.

Don’t forget to cancel your direct debt if you have one for monthly payments.

Cancelling a single premium policy

If you’ve taken out PPI alongside a loan or finance agreement, then the chances are you have a single premium policy, which means you’ve paid for insurance covering the whole term up front.

It’s now possible to cancel the policy before the end of the term. New rules brought in by the Financial Services Authority (FSA) mean the lender must give you a fairly calculated refund, but you can be charged reasonable costs.

If you don’t think your refund is fair ask the Financial Ombudsman Service to check

Refunds

If you don’t think the company are offering to refund you a fair amount, ask them to tell you exactly how they calculated the figure.

Unfortunately you can’t just divide the premium by the number of years the PPI lasts for. This is because the insurance costs more at the beginning of the term when there is the longest amount of time in which a claim can be made.

For example, during year 1 of a 5-year policy, there are 5 years in which a claim might be made, but in year 4 there is only 1 year left in which a claim might be made. The risk gets less as the term progresses, so the premiums get lower.

Ask the firm to tell you how much of the premium is allocated to year 1, year 2, year 3 and so on. If you don’t think the refund you have been given is fair, ask the Financial Ombudsman Service if they can check this for you.

If you’re refused a refund

If the lender refuses to give you a refund, refer the firm to the FSA’s press release dated 29 March 2007.

If they still refuse, make a formal complaint to the firm and if they reject that, take your complaint to the Financial Ombudsman Service. You should also report the firm to the FSA, as they are breaking FSA rules.

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