INSURANCE companies are set to come under fresh attack this week over their controversial payment-protection policies, sold to cover mortgage, rental or other payments in the event of accident, illness or job loss.

Citizens Advice (CA), the umbrella body for 270 Citizens Advice Bureaux around Britain, is expected to call on the Office of Fair Trading to investigate this type of insurance, on the grounds that in many cases “it is more about providing an additional source of profit for the financial industry than about protecting consumers”. CA claims that this insurance adds to policyholders’ debts instead of protecting them against hardship.

A woman recently walked into a Cornwall CA branch reporting that a payment-protection policy had increased a secured personal loan from £17,800 to £22,962. She had separated from her boyfriend since the loan had been signed, and was struggling with the repayments, but was unaware that the policy premiums had increased the loan so much.

There are an estimated 20m payment-protection policies in force, generating annual premiums of more than £5 billion.

The demand for an inquiry is understood to be supported by a CA report arguing that this insurance is often very expensive, mis-sold to people who cannot possibly claim on it, and designed to exclude many of the most common situations that can lead to debt problems.

It alleges that problems occur in nearly all sectors of the consumer-credit market, from non-status mortgage lenders and hire-purchase companies to high-street banks and credit-card companies.

The premium can be as much as a quarter of the value of a loan and many customers find they have to borrow even more to keep the policies in force.

It is common for interest to be charged on payment-protection premiums in credit agreements. In the case of some credit cards, this can increase the cost of borrowing by about 9% a year.

“Borrowers are often sold completely inappropriate policies,” said Teresa Perchard of the CA. “In many cases high-pressure sales or inertia selling are used to force people to take out insurance that they cannot afford, do not want or need, and cannot benefit from.”

Policies sold by several well-known lenders exclude cover for common problems such as bad backs and mental-health issues that can stop people working. Many have arbitrary age limits, and ban the self-employed and those on fixed-term contracts from making a claim.

MAKE SURE YOU DON’T GET CAUGHT

Ensure that the insurance will cover the whole debt.

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