Customers with personal loans that include Payment Protection Insurance could get a significant refund if they seek a better protection deal and switch, according to the Post Office.
Payment Protection Insurance sold alongside a loan is usually added upfront to the total sum of the loan. This means that the customer pays interest on the insurance premiums as well as the loan itself.
The Post Office is urging customers to challenge their loan provider to find out the true cost of their payment protection and compare this to better value standalone deals on the market.
A customer with a loan of £7,500 over 5 years could receive a refund of £1500 if they cancelled their loan protection, but kept the loan in place. The refund is a portion of the insurance premium that was charged upfront and added to the loan amount, and can be paid either by reducing the customer’s monthly loan repayments or as a lump-sum refund.
By switching to Lifestyle Protection, a standalone Payment Protection Insurance policy through the Post Office, the customer is not tied in for any length of time (e.g. the term of the loan) and they will not pay interest on their monthly premiums. Lifestyle Protection could cost significantly less and covers the customer’s monthly outgoings, rather than just a loan payment, taking care of their overall commitments for up to 12 months.
The Post Office says “Banks and loan providers are in an ideal position to sell insurance with their loans, but customers should challenge them to find out what the true cost of their payment protection is. By comparing this to standalone policies, customers can see for themselves that better value deals are available.”