Confusion sometimes exists regarding the differences between Payment Protection Insurance and income protection. "PPI" is an insurance based product, which may be designed to provide coverage for a current debt. Income protection is not related to a specific debt but provides cover for any type of income. It is usually connected by banks or other credit providers, as an extension to a loan or overdraft, generally giving cover to borrowers against circumstances that could result in them being unable to honour the debt.
Payment protection is generally offered as insurance in respect of minimum loans or overdraft payments for periods of usually twelve months. On expiry of this term, borrowers are forced to resort to other methods to repay the debt. However, this term is usually sufficient for most borrowers to restore their capabilities to service the debt. This type of insurance differs with others, for example home insurance, by being complex in determining whether it will be beneficial to a borrower.
A discerning assessment is needed, regarding potential consequences should a borrower become unemployed. Considerations would involve for example, determining whether any payments made in lieu of notice, would render such a claim ineligible. This is irrespective of the borrower, genuinely being unemployed. In an instance such as this, the direction taken by a Payment Protection Insurance company is comparable with that taken regarding unemployment benefits.
This type of insurance has been the centre of controversy, being sold with mortgages, loans and credit cards since the nineteen nineties, to the extent of reportedly 6.5 million policies a year. However, further reports show that during 2011, one million complaints were received from consumers relating to their policies. This insurance product was referred to the Financial Ombudsman, under the term "mis-sold, payment protection insurance".
The number of complaints received between October and December 2011 were assessed at 30,301, which is a significant increase of 57% in comparison with the previous three months. These statistics assume even greater significance, by a report that more than two-thirds, or 68% of complaints related to controversial insurance, were resolved by the Financial Ombudsman in favour of the complainant. This was a positive result in comparison to the figure reported for between July and September, of 92%. There is naturally trepidation prevailing in providers of this type of insurance and there is uncertainty as to the number of complaints that will be forthcoming in the future.
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