Rip-off Insurance Under Attack!

For many years, we've campaigned against payment protection insurance. At last, two financial watchdogs have seen the light...

For nearly four years, The Motley Fool has been campaigning against one of the UK's biggest financial scandals: the blatant mis-selling of, and overcharging for, payment protection insurance (PPI).

When you take out a credit card, personal loan, mortgage or other credit agreement, you're sure to be offered (optional) payment protection insurance. This covers your monthly repayments for up to a year if you are unable to work due to accident, sickness or unemployment and (except for mortgage PPI) pays off your debt if you die.

As someone who worked in the PPI industry for more than a decade before quitting to become a financial writer, I've known since the early Nineties that PPI is one big 'protection racket'. Also, PPI is big business: I reckon that there are roughly 28 million PPI policies currently in force, with a further seven million being sold each year.

What's more, selling PPI brings massive profits for lenders. In the past eight years, yearly premiums for PPI have tripled, rising from £2 billion in 1998 to perhaps £6 billion this year. This makes PPI the UK's third-biggest general insurance product for personal customers, after motor and household cover.

Now for the bad news: thanks to huge built-in commissions, PPI is massively overpriced. In fact, it's not unusual for profit margins to exceed 80% to 90% of the premiums collected from customers -- and I know, because I once managed these accounts. Indeed, lenders (and, to a lesser degree, insurers) will pocket £5 billion of the above-mentioned £6 billion in profits. Furthermore, many borrowers are duped into paying up to ten times as much as they need to for this everyday cover, which is nothing short of disgraceful!

Hence, you can understand why I've been waging a war against PPI. Happily, I now have two powerful allies on my side, as the Financial Services Authority (FSA) and the Office of Fair Trading (OFT) have just both panned PPI in two separate reports. The OFT's inquiry into PPI concluded that this market is uncompetitive and is failing consumers, because PPI offers a poor deal, both in terms of price and protection. Hence, it has referred PPI to the Competition Commission for investigation and possible remedies.

However, although I welcome this news, I'm not jumping for joy, because previous enforcement actions have been half-hearted. For example, sellers of other financial rip-offs, such as store cards and extended warranties, got off lightly, in my humble opinion. Hence, even though the PPI market is a complete horror story, I doubt that the OFT and FSA will throw the book at lenders -- a light tap on the wrist is far more likely!

As PPI's biggest critic, I've put a lot of time and effort into finding an antidote to this inferior insurance. Happily, there is one simple answer to this foul mess: NEVER buy PPI from a lender -- instead, shop around for a Best Buy stand-alone policy from an independent provider. After careful research, I'm delighted that the Fool has joined forces with SecurityFirst, a leading provider of PPI, to offer you proper protection at an ultra-low price.

For example, to insure a monthly mortgage repayment of, say, £500 would cost you between £30 and £40 if you bought mortgage PPI (MPPI) from your lender. However, accident, sickness and unemployment cover with SecurityFirst would cost a thirty-year-old borrower just £10 a month. What's more, SecurityFirst's PPI is superior to most, because it provides 'back to day one' cover, whereas almost all other policies don't pay you anything for the first thirty or sixty days of each claim.

Thus, ditching your existing MPPI and switching to SecurityFirst will save you between £240 and £360 a year. Over the 25-year life of a mortgage, you could save up to £9,000, so by switching MPPI providers, you could celebrate paying off your home loan with the holiday of a lifetime! In addition, this article shows how little SecurityFirst charges to protect loans, cards and other credit agreements.

More: Use the Fool to find better credit cards, insurance, mortgages, personal loans and savings accounts!