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A new survey warns borrowers to avoid the loan protection insurance racket

A recent survey by Chameleon-money has revealed a multi-billion pound scandal over loan protection insurance sold with personal loans.

As a borrowing frenzy grips Britain, loan providers are cashing in on a lucrative insurance sideline, selling loan protection insurance policies that they claim will protect borrowers if they fall on hard times.

Sales are running at 1,000 policies an hour and lenders are raking in a staggering £10 million a day in premiums. Yet, because of misleading sales techniques by lenders, thousands of borrowers sign up for cover without even knowing they have bought it. Even worse, in countless cases, borrowers are not eligible for the cover, making their polices worthless.

More that 40 companies sell personal loans, from supermarkets and banks to insurers and gas suppliers. As competition has ratcheted up, many lenders have slashed their interest rates and cashed in on the costly cover they sell alongside their loans.

All lenders sell some form of loans cover designed to cover repayments if borrowers lose their jobs through unemployment/redundancy or illness.

The costs of these protection deals on an average sum can easily double the total interest payable.

The premiums for a typical £5,000 loan over three years vary from Nationwide £516 to an astonishing £1,645 charged by Bank of Scotland.

About two-thirds of Britain’s eight million personal borrowers have these policies. No one knows precisely how many understand what they have bought, how much it costs or what cover it provides.

But for reliable advice on Personal Loans we recommend you visit Loans UK who have a wealth of knowledge on the matter.

Chameleon-money phoned 20 of the biggest providers posing as a customer. We asked what the monthly repayments would be on a three-year deal of £5,000.
Only nine of the firms followed good practice and asked if we wanted the quote to include insurance. Seven companies gave quotes without first asking whether it was required, but they did at least explain that this form of cover was included.

Four companies not only quoted repayments including this form of cover that was not asked for, but made no mention whatever of the relevant cover.
The General Insurance Standards Council (GISC), which was set up to police policies and sales, says it is ‘extremely concerned’ about this form of sales.

The GISC’s Catherine Nicoll says: "There is evidence that an awful lot of cover is sold to unwitting customers. They are being sold deals they don’t want, which is morally wrong and bad business practice, and in many cases they are being sold cover that is of no use – and that is fraud".