Finance agreement insurance, also known as payment protection insurance (PPI), is a type of insurance that helps borrowers cover their loan repayments in the event of unforeseen circumstances such as illness, injury, unemployment or death. It is commonly sold alongside loans and credit cards to protect the borrower from defaulting on payments.
The purpose of finance agreement insurance is to provide peace of mind to borrowers who are often taking on significant financial commitments. For example, if a borrower takes out a mortgage to buy a home, they may be faced with monthly repayments that span over several years. In the event of an unexpected event that affects their ability to work and earn an income, finance agreement insurance can help cover the repayments until the borrower is back on their feet.
However, finance agreement insurance has been a highly controversial topic in recent years due to widespread mis-selling by financial institutions. Many lenders have been found to have sold PPI policies to borrowers who were not eligible for coverage or were not informed of the terms and costs of the insurance. As a result, many customers have been paying for policies that they cannot use or do not need.
In the UK, the Financial Conduct Authority (FCA) has set up a compensation scheme for customers who were mis-sold PPI. The deadline for making a claim for compensation is August 29th, 2019. If you believe you were mis-sold PPI, you can make a claim directly to your lender or use a third-party claims handling company.
If you are considering taking out finance agreement insurance, it is important to carefully read the terms and conditions of the policy and ensure that you are eligible for coverage. You should also shop around to compare the costs and benefits of different policies and consider whether you really need the insurance and whether you can afford the premiums.
In conclusion, finance agreement insurance can be a valuable safety net for borrowers who want to protect themselves from financial hardship. However, it is important to be aware of the risks and costs of this type of insurance and to ensure that you are fully informed about the terms and conditions of any policy you are considering.