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The real profit from selling loans often doesn’t come from the products themselves, but from the insurance sold alongside. There are around 20 million PPI policies in the UK, historically generating around £5 billion a year for the companies involved, so it’s no wonder they want to do all they can to protect the product.
Yet it isn’t the insurer that reaps most of the reward, it’s the company selling the loan. The cost of the insurance almost always dwarfs the interest cost, so it’s unsurprising many believe this is the most over – priced financial product around.
Worse still in June 08, after a 15 month investigation into mis – sold PPI, the Competition Commission found the following average insurance payout ratios apply.
o Car Insurance: 78%
o Home Insurance: 54%
o Mortgage PPI: 28%
o Personal Loan PPI: 15%
o Credit Card PPI: 11%
In layman’s terms, this means while for every £100 insurers take on car insurance they pay out £78 on credit card PPI its just £11… meaning it is HUGELY profitable. Yet most of this profit goes to the lenders not the insurance companies.
Before getting into this, if possible get hold of a copy of your policy’s terms and conditions. If you can’t find them, contact your lender to ask for a copy (but make sure it dates back to the time of your agreement as terms will change over time). Lenders can ask for £1 to provide this but not all do so you could include a cheque for £1 (don’t send cast though) to speed it up a little.