If I have taken out a Payment Protection Insurance Policy can I cancel it at any time?

The mis-selling of Payment Protection Insurance

The mis-selling of Payment Protection Insurance or PPI is something which is becoming increasingly common in the United Kingdom. Accordingly the Financial Services Authority (FSA) has put in place strict conditions which must be adhered to prior to the product being sold. An individual being sold Payment Protection Insurance must pay close attention as to whether the supplier is complying with these conditions. If they do not comply with these conditions the Payment Protection Insurance will have been mis-sold.

Furthermore, there are a variety of other factors which will be taken into account to understand whether a policy concerning Payment Protection Insurance has been mis-sold.

The cancellation of Payment Protection Insurance

If the supplier of the Payment Protection Insurance has complied with all the conditions set down by the Financial Services Authority (FSA) and has not mis-sold the insurance policy an individual will still be able to change their mind about the policy and cancel it when they deem it necessary to do so.

How can I cancel the Payment Protection Insurance policy?

If an individual has made a decision that they wish to cancel their Payment Protection Insurance policy then it is an easy process to go about cancelling it.

When an individual first takes out a Payment Protection Insurance policy they will have a legal right to cancel the policy within 14 – 30 days. The duration of the cancellation period will depend upon the particular terms of the policy that the individual has taken out.

However, an individual can still cancel the policy following the expiration of this initial period.

Cancellation of the policy

The cancellation of the policy will depend upon which type of Payment Protection policy had been taken out in the first place. The two main types of polices are as follows:

  • Monthly Payment Protection Insurance

  • Single Premium Payment Protection Insurance

Monthly Payment Protection Insurance

If an individual has taken out a monthly payment protection policy then cancellation of the policy can be made at any time during the period of the policy without the incurring of any further costs.

When cancelling a monthly policy an individual should also ensure that they cancel the direct debit payments from their bank.

Most Payment Insurance Protection policies attached to mortgages, credit cards or store cards will be on a monthly payment policy.

Single Premium Policy

If an individual has taken out a Payment Protection Policy alongside a loan or finance agreement then in most cases they will have a single premium policy meaning that they will have already paid for the insurance covering the whole of the term.

Following new rules imposed by the Financial Services Authority it is possible to cancel a single premium policy before the end of the term with the lender required to give the individual a refund which has been calculated fairly. However, in certain circumstances the lender can charge reasonable costs for the cancellation of this type of policy.

A fair amount for the purpose of the refund

As stated above when an individual cancels a single premium policy they must be refunded a fair amount. Accordingly there may occur the scenario whereby the individual feels that they are not being refunded a fair amount, if this occurs then they should ask the company providing the refund exactly how the figure offered as a refund has been calculated.

Can you simply divide the premium by the number of years the Payment Protection Insurance lasts for?

You cannot simply divide the premium by the number of years the Payment Protection insurance lasts for as the insurance will cost more at the beginning of the term when there is the longest amount of time in which a claim can be made.

This basically means that in the first year of a five years policy there five years in which a claim can be made meaning that the premium will be higher than when it is in the fourth year as there is only one more year when a claim can be made.

Is it good practice to ask the firm how the premium is calculated over the years of the policy?

When asking how the refund has been calculated it is good practice to ask the company to tell you how much the premium is allocated between the years of the policy.

What should I do if I don’t think that the refund is fair?

If an individual does not think that the refund is fair then it is a good idea to speak directly with the Financial Ombudsman Service and ask them if they can check the fairness of the refund on behalf of the individual.

What happens if I am refused a refund?

If an individual has been refused a refund they should get in contact with the Financial Ombudsman Service stated that the company is in contravention of the rules set down by the Financial Services Authority.

If I have cancelled my Payment Protection Insurance is there any alternative insurance which I can get in place?

If you cancel your Payment Protection Insurance policy it may be a good idea to get another form of insurance in place in order to provide you with adequate protection. Another form of insurance which an individual may wish to consider is that of income protection.