The true price of Payment Protection Insurance

The Financial Services Authority has consistently said that Payment Protection Plans are more important than ever at a time when we, as a nation, have about £1.4 trillion worth of debt. Consumers need this type of financial protection service as our personal debt continues to increase.

Payment Protection Insurance policies are available for people who have a credit card or have taken out a loan. All policies cover the cost of these card or loan repayments during an unexpected financial crisis, such as redundancy, sickness or injury and unemployment. Every policy differs in what in will cover and how long for so you need to read the small print carefully.

The problem with this system doesn't exist with the idea of selling peace of mind to consumers, it lies in the expense of PPI plans and the worry that most of them are mis-sold to consumers. The Competition Commission looked into this and found that while competition was healthy between those insurers and companies who offer PPI plans, the expense and ways in which they are sold need further investigation.

Campaigners such as the Citizens Advice Bureau, who oppose the current PPI system, find they are just a way for finance companies to make more money on top of the interest rates paid on each credit card or loan. Many PPI's can end up costing the consumer almost as much as the loan itself and in some cases more.

Many consumers are finding their monthly repayment amounts dramatically increase when a PPI is taken out. For example, an average loan of £10,000 could be expected to pay approximately £200 per month in repayments. If a Payment Protection policy was taken out at the same time this could increase to a massive £250 per month. Some people have even had to go to the extreme of taking out another loan in order to meet their payments.

Martin Lewis from MoneySavingExpert.com feels that too many people have been mis-sold extortionately high cost policies and is urging them to apply for refunds.