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Personal Loan Insurance

If you have ever taken out a personal loan it is very likely your bank also tried to sell you some form of Insurance cover. You may have, in good faith, purchased the cover, but may not be aware that it is highly controversial and may have been mis-sold to you.

Personal Loan Insurance is designed to step in and cover loan repayments in the event a policyholder is unable to work due to sickness, accident or redundancy. It has been widely sold alongside financial products for many years and brings in over £5 billion for banks and other lenders every year. The cover has received a large amount of negative media coverage in recent years; however, and thousands of people have registered complaints for mis-selling.

Personal Loan Insurance is controversial for several reasons. Firstly, it is very expensive and can cost between 13% and over 50% of the original loan value. On a loan of £20,000 this could add anything from £2,600 to over £10,000 to your debt - plus interest. What many people do not realise, and are not told by their lender, is that PPI cover is widely available and most people can find cheaper, more comprehensive policies elsewhere.

Another issue with Personal Loan Insurance is that it does not always offer the level of protection people expect. Many policies, for example, only cover the minimum repayments while others have a maximum term of use of one year. This means, although repayments are being covered, the debt remains at a constant level and does not reduce.

In recent months The Competition Commission announced it was to ban a particular type of personal loan insurance known as a single premium policy. This type of cover is notorious as it usually only lasts for a defined period of time, often 5 years, meaning many borrowers who have longer loan terms are left without cover. Unfortunately, many lenders, in the past, have failed to make customers aware of the limited nature of the cover and some have only discovered they are without insurance when they have been made redundant, become sick or had an accident and needed to make a claim.

The single biggest problem with personal loan insurance is the fact that it has been so widely mis-sold. In 2006, investigations by The Office of Fair Trading and The Financial Ombudsman Service revealed widespread failings in the way lenders were selling policies. High rates of commission led to pressurised selling while a lack of staff training meant policies were frequently recommended to people who were wholly unsuited. Some more specific examples are below.

Customers were wrongly told they had to have the cover or it was added without their knowledge
In many cases, unfortunately, customers were wrongly told they had to have Personal Loan Insurance or it was added without their knowledge. This type of insurance was always optional and, if you were told otherwise, your policy was mis-sold to you.

The full cost and terms and conditions of the cover were not explained to the customer
In order to make an informed decision as to whether the Personal Loan Insurance cover was right for you, your lender should have carefully explained the full costs involved as well as the terms and conditions of the policy. If this did not happen then you could make a claim for mis-selling.

The customer had a pre-existing medical condition which made them unsuitable for the cover
Most policies do not cover pre-existing medical conditions. In order to ascertain whether the Personal Loan Insurance was right for you, your lender should have asked you about your medical history and advised you that any existing conditions would not be covered. If you were not asked about your health, were not told any existing health problems would not be covered or were, incorrectly, told they would be you could make a claim.

The customer was unsuitable for the cover due to their employment status
Personal Loan Insurance is designed to cover the borrower if they are, temporarily, unable to work, but many policies were sold to people who were retired, unemployed or in full time education!

If you would like to find out more about mis-sold loan insurance, call our customer care team on 0207 471 2000.


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Belmont Thornton Limited is regulated by the Claims Management Regulator in respect of regulated claims management activities; our registration is recorded on the website www.gov.uk/moj/cmr number 18273

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