Mis-sold PPI: What is Single Premium PPI?

Payment Protection Insurance (PPI) was orginally aimed to cover consumers' debt repayments if they were suddenly unable to continue payments because they lost their income by becoming ill, are involved in an accident or they are made redundant.

The majority of insurance policies require consumers to pay a regular monthly premium in return for the security of their cover, this is often referred to as a Periodic Premium Policy. This cover can be found in health insurance, home and contents insurance, and motor insurance. Before 2009 a large amount of PPI policies did not follow this Periodic Premium method. Instead PPI polices were part of Single Premium Policies or Up-Front Premium Policies.

Instead of calculating the premium to be paid for each month's cover, and taking this fee from standing orders or direct debits every month, PPI companies would calculate a single premium which would be demanded in advance in return for PPI cover for a several years.

For example, if a consumer wanted to protect his personal loan over its 15 year lifespan, the PPI company might work out a payment of £50 for each month of cover. It would then multiply this to calculate a single premium for the entire 15 years of cover. In this example, that would equate to a massive £9,000.

Because the premium which was payable under a Single Premium Policy was often very large, the PPI Company would add it to the balance of the loan, meaning that even though the consumer would make payments towards the PPI side of their loan each month, the loan company would also charge interest on top of this. Over the course of the 15 years, the consumer would have paid much more for their PPI cover than they would if they had taken out a Periodic Premium Policy.

The banks claimed that Single Premium Policies were more useful to consumers as they ensured that consumer's were protected and provided peace of mind, but really, consumers who took out a Single Premium PPI cover was at a significant disadvantage. Not only was Single Premium cover more expensive, but it also made it more difficult for the consumer to cancel their cover and switch to a better policy – if the consumer wanted to cancel, the entire loan would have to be restructured to accommodate this, and they would still end up paying the interest which was created by the PPI element of their loan.
In 2009 the Financial services Authority (FSA)conducted an investigation into the prevalence of Single Premium PPI policies and as a result they decided to ban these policies completely because it considered them unsuitable for the majority of consumer needs. The FSA also viewed them as a means of increasing PPI company's profits and forcing consumers into unfair PPI deals.

If you have had a Single Premium PPI policy then there is a strong chance that you have a valid claim for PPI mis-selling. All you need to do is make an official complaint to the company that sold you the PPI and if this is unsuccessful, you can refer the matter to the Financial Ombudsman Service (FOS) free of charge. If the FOS decides that your PPI was mis-sold to you then it will not only order the PPI company to pay you a full refund of any premiums you have paid, but it will also order them to completely write off the PPI element of your loan along with any interest. You could potentially be entitled to claim back thousands of pounds worth of premiums.