You may not have heard of the term PPI or payment protection insurance, but there is a high probability you will have been asked if you want it. There are 20 million PPI policies existing in the UK. They are meant to cover you when you take out a form of credit, in case you are ill or unemployed and cannot meet re payments. However, the PPI market has been full of difficulties. Many people claim that they were mis sold policies. This is due to the vast amount of exclusions on the policies (e.g. you cannot usually claim if self-employed).



Which Magazine recently discovered that up to two million PPI policies have been sold to people who may never be able to make a claim. This is all about to change. From 2010, the competition commission has announced that lenders will not be able to sell PPI at point of sale. Neither will they be able to sell single premium policies, this is where a lump sum is added to the amount you have borrowed and which you end up paying interest on.

The Campaigns Manager, for Which? Magazine said "For too long too many consumers have suffered from shoddy, expensive and inadequate protection. It's a great shame that since we began campaigning for better products, many people have wasted millions of pounds on PPI."

The Association of British Insurers (ABI) said this ban will leave customers without vital protection. "It carries significant risks for borrowers, mainly by leaving them unprotected at a time when unemployment cover has never been needed more," a spokesman said.

Until the deadline in 2010, PPI will likely to be offered to customers with their loans. However, customers should be aware that there are other insurance policies available which may be cheaper.

Comparing PPI policies is difficult. Other policies are often called income protection policies instead of PPI. Unlike a PPI policy, you can tailor an income protection insurance policy to your specific needs. You can decide how long it will pay out for and whether it pays out only for redundancy or for accident, illness and redundancy.

If you think you may have PPI, you need to see how much you are paying for it. Write to your lender and ask if you have the insurance and how much it is costing. If you have a monthly policy, you can cancel it instantly. However, if you have a single premium policy, it is slightly more complicated.

New rules brought in by the Financial Services Authority (FSA) means you can cancel your policy before the end of the term and the lender must give you a fairly calculated refund, but you can be charged reasonable costs. The Financial Ombudsman Service will check if you do not think it is fair or if they refuse to pay a refund refer them to the ombudsman.

If the policy does not meet your needs you may be able to claim that you have been mis sold it, for example if you were sold the insurance face-to-face and not told about exclusions. Which? Magazine has a section on its website about reclaiming PPI insurance. It has template letters to download to send to lenders to start the process.