The Loan Protection Insurance Racket

A Which Survey reveals that lenders are making millions of pounds each year by mis-selling loan protection insurance.

Many banks and other lenders are selling expensive and in some cases unsuitable loan protection insurance with personal loans.

Posing as costumers Which phoned 20 loan companies to obtain quotes for a personal loan. Some companies automatically included loan protection insurance – designed to cover monthly repayments if you are unable to work due to sickness or redundancy in quotes without being asked. Some companies also failed to ensure that the loan protection insurance policies were suitable for the buyer, refused to send out loan protection insurance documents, or given the most basic information about what is, and more importantly what isn’t covered under their loan protection insurance.

Which looked at loan insurance sold with personal loans because it tends to be expensive and because about 60% of people who take out a loan also take loan protection insurance – a much higher figure than for other forms of credit.

The results of the Which survey are shocking. As well as mis-selling Which concluded that the Association of British Insurers and General Insurance Standards Council rules are being flouted.

It is possible that people are taking out loan protection insurance without realising it but loan protection insurance should be an optional extra not automatically included, yet of the calls Which made that was the case in 58% of quotes. Most worrying, 33% of all callers weren’t told that it had been included. Northern Rock included loan protection insurance in four out of five calls and each time it failed to make it clear.
Intelligent finance was the only company that didn’t include loan protection insurance automatically.

In the calls where loan protection insurance was mentioned, only 29% were given an explanation of what was covered and in 71% of cases the caller had to ask for the information. Astonishingly Abbey National, Barclays and The Royal Bank of Scotland offered no details about what loan protection insurance covered in any of the calls. Incredibly, not a single caller was asked about their medical history or told that pre-existing conditions are excluded by all loan protection insurance policies. Furthermore, only a third of callers were asked for employment details and this is an area that causes major problems as the self-employed may not be eligible for loan protection insurance.

Which also found that few companies were prepared to send out loan protection insurance policy documents and justified this by saying that once loan protection insurance cover is taken out and the policy received, if it turns out to be unsuitable the loan protection insurance could be cancelled and the premium refunded.
The financial Ombudsman dealt with more than 700 loan protection insurance complaints in the year 2000 to 2001 most problems stem from people taking out unsuitable loan protection insurance policies.

If you are unhappy about how your loan protection insurance claim has been handled or you are unhappy with the outcome and you have already tried complaining to the loan protection insurance insurers you can take your complaint to the financial Ombudsman.