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The Financial Services Authority (FSA) has published a new agreement to help customers get refunds on payment protection insurance.

The FSA's arrangement for single premium payment protection policies has been welcomed by the British Bankers' Association (BBA), which said it was pleased its members had already been adopting the plan for more than a year.

The new arrangements mean that everyone taking out a single premium payment protection insurance policy will be entitled to a partial refund of the premium if the policy is cancelled early. These have been agreed following discussions between the FSA, BBA and other industry trade associations.

Angela Knight, incoming chief executive of the BBA, said: "Banks have already implemented the changes announced by the FSA, but people who are borrowing from other lenders can now benefit too.

“PPI can provide excellent protection for someone finding themselves in unexpected financial difficulties. It is good to see that customers choosing to take a loan from a non-bank lender now have the same protection that banks already offer and will be entitled to a refund if they cancel their single premium policy."

Storm

Would this work under IVA proceedings - ie if someone was entering into an IVA halfway through a loan agreement, would the money be refunded directly, or the claim merely reduced? Or should we be advising clients to cancel these policies before the creditors are informed of impending IVA proceedings?

Regards, Melanie Giles, Insolvency Practitioner for over 20 years.

For further details contact me at http://www.melaniegiles.com and view my IVA blog at: http://melaniegiles.blogs.iva.co.uk

The single premium is normally added to the principle amount and interest charged on a daily or monthly basis so when the client cancels the capital outstanding normally reduces as the refund is applied to the account.

When you consider the premiums being charged particularly in the near prime / sub-prime secured markets this will have a big impact on the outstanding balance. As you will know premiums of 17% - 20% + of the initial balance are common place so on a £20k loan its going to make reasonable dent in the balance outstanding.

With some clients I am sure stripping out this type of insurance could make a real difference to the amount they are paying today or the % they are going to return to creditors.

18/4/07

Hi Storm,

Sorry for my lateness, just catching up after being away.

I can not think of a single advantage to anyone other than the Seller if someone buys single premium payment protection insurance rather than regular premium.

Look at the numbers – £1,000 per month insured mortgage payment benefit with day one cover should not cost you more than for £32.50 per month. Why would anyone want to pay for 60 months in advance ?

If you have a single premium policy and can surrender it, I believe you should do so – but not before arranging replacement regular premium cover. Cover for loan repayments for 5 years, where the Accident or Sickness benefit is payable for that long, and the premium rate and cover is guaranteed regardless of claims, should not cost you more than £4.50 per month per £100 of benefit insured.

Another excellent reason for surrendering is that the Seller will have to repay some of their commission – and commissions of 70% of the single premium were fairly common !


John Tegg
Accident and Sickness cover that pays for up to 60 months for Clients within IVA's.
Tel: 0845 673 9999
e=-mail: quotemeplease@asu4iva.co.uk
www.asu4iva.co.uk