Tag Archives: insurance
Loan cover watch out for Payment Protection Sharks
The Financial Services Authority (FSA) has been investigating the way Payment Protection Insurance is being sold by loan providers which include some of the UK’s biggest banks and building societies. And it’s big business. Sales of PPI as it’s called, earn lenders more than £1billion a year.
PPI is designed to protect borrowers by paying monthly loan repayment in the event that the borrower becomes unemployed or unable to work though accident or illness. Many lenders sell the insurance alongside the loan with around 50% of customers agreeing to the insurance.
However, according to the Department of Trade & Industry, only 4% claim and of these claims 25% are rejected. This may be partially explained by the FSA’s investigation which found that around half of the lenders surveyed failed to explain the details and exclusions to customers or make sure the insurance was suitable for the clients. Whilst the investigation reportedly does not find that lenders are compulsorily selling the insurance, it was frequently automatically added to loan quotations without it being disclosed that the insurance was, in fact, optional.
Even worse, some lenders are failing to point out to borrowers that the cost of the insurance for the full period of the loan, was being added as a lump sum at the outset rather than being paid as a monthly premium. This means that the borrower cannot cancel the insurance without redeeming the entire loan and renegotiating a new loan.
And hey, some of these lenders certainly know how to charge for PPI. According to Simon Burgess, Managing Director of British Insurance Ltd, one of the big high street banks typically charge £30 per £100 of loan insured. This, he says, compares with between £4 and £6 if bought separately on the internet. This view is supported by price comparison service uSwitch which says taking out PPI with banks can increase the amount you pay for cover by nearly 500%.
Take an example. Last year a high street bank was charging £5,150 for PPI to cover a loan of £16,000. The cost of PPI was then added to the loan making £21,150 as the total capital repayable and interest charged on the lot. This meant that of the £300 monthly repayment, about £70 represented the cost of the insurance. Equivalent insurance can be bought on the Internet for around £20 per month and cancellable at any time without penalty.
So what are the lessons?
If your lender offers you PPI cover ask for the monthly premium with and without PPI. That way you can see the true cost of PPI.
Find out whether PPI is added to the loan as an initial lump sum. If it is back off!
Shop around for competitive quotes. A search on the Internet for Payment Protection Insurance or Income Protection Insurance will find you lots of web sites to try.
Check out the conditions on the insurance. Particularly check out the exclusions which invalidate a claim. For example, some policies stipulate that you must have been working continuously for 6 months prior to a claim for a minimum of 20 hours a week. Seasonal or temporary work is usually excluded. When you take the insurance out you must be in good health and know of no impending disability and not be aware that you could become unemployed. Could these exclusions apply to you? If so, the insurance will be of no use to you.
Please don’t waste your money. PPI insurance is a good idea so long as it is cheap and on a monthly cancellable contract. After all your circumstances may change. Then check the policy’s exclusions to make sure that the insurance is valid for your personal circumstances.
Ways To Secure Yourself For A Financial Emergency
One of the wisest moves is to make preparations for any possible financial emergency. Financial experts advise everyone to set aside a certain amount of funds that is enough to last for a minimum of 6 months. Hence, if tragedy happens like loss of job, you have the assurance that you have emergency savings that can be used to cover for you and your family until you can get a new job or other means of earning your income.
Can it really be possible to save money without using paychecks? How can you be more prepared to face financial trials? Here, we’re going to discuss some tips to help you secure yourself for a financial emergency.
Open a checking account. Send a portion of your paycheck to your deposit account each month. Thus, you can have something to rely on during emergencies.
Take out a personal loan from a credit union. In case you need emergency money, you may turn to a credit credit union to ask for financial assistance instead of payday loan lenders. Compared to banks, credit unions have a more relaxed policy and lower interest rates for borrowers.
Seek credit counseling. There are certain credit counseling agencies which are government accredited. They offer counseling services for a lower cost. If you have problems controlling your expenditures or handling your credit card and other financial concerns, it’s best to ask for assistance rather than to let yourself get stuck in.
Watch your spending. The best way to save money despite having limited paycheck is to control your spending. To start with, one can make a list of all the monthly expenses and subtract it from your monthly salary. It may be important for you to make adjustments on your expenses to stretch your budget. This needs self-discipline on your part to avoid unnecessary splurges on luxuries.
Apply for insurance. Secure a home insurance, personal insurance, and car insurance. Medical bills can put you in debt in just a few weeks if you don’t have a health insurance coverage. So, it’s best to save a certain portion of your monthly salary for your insurance payments as part of your financial plan.
Take out a Home Equity Loan. Another source of emergency funds that you can use is the equity of your home. But, you have to be aware that an equity loan puts your property at risk. If fail to keep up with the payments, in the end, you’re most likely going to lose a home. Hence, it is important to consider all your options first if you have any plans of using your home equity for a loan.