If one is already in possession of a loan protection policy, the possibility of cancelling it in order to take out a new deal is much more difficult than one would assume.

The right of the consumer to cancel any existing Payment Protection Insurance (PPI) one has as part of a loan in order to take up a better offer is perfectly reasonable. However, what makes the situation rather more complicated is if the consumer has a single premium PPI, in which the insurance for the entire period of the loan is gathered into a lump sum and added to the value of the loan. Lenders have actually found themselves subject to criticism from the representatives of the Office of Fair Trading, for not highlighting the details and explaining the full potential of this option more regularly to their customers.

For a customer in possession of a single premium policy, a section of their monthly repayments would go towards paying off the sum of the PPI while the remainder would be put towards paying off the loan. If the customer was to cancel this part way through, the process would get sufficiently problematic; they would find themselves faced with a long drawn-out appraisal which would be used to determine how much PPI they should have paid off up to this point. If it is found that the amount paid off by the customer is more than the initial cost of the cover when the loan was first taken out, then ideally the lender should offer a fair refund of what the customer has paid.

However, not all lenders follow the principle of fairness and will stick very firmly to the contract that was initially drawn up. They will assert that the terms of the loan must be given a reappraisal if the customer is looking to cancel a single premium policy. Nonetheless, the customer is entitled to follow the terms of the loan as they stand, with no interference from the lender to the contrary. Customers who find themselves in a tricky situation with their lender should contact the Office of Fair Trading to seek advice on how to deal with the matter fairly and to secure their best interests.

If a customer does track down a deal that they feel suits their needs more adequately then they are fully permitted to cancel their single premium policy, and in so doing, the terms of their loan must be kept exactly the same, repayments must be allocated where they are rightly due and the customer must be given the opportunity to look over and review the lender’s calculations to ensure that all aspects of the information they are being given is correct and that they are receiving the amount that is owed to them so as to embark on their new policy with no problems being carried over from their initial policy cover.

Given the problems that can be incurred from the sale of single premium policies in terms of the complications facd by consumers upon trying to extricate themselves from such a policy, the Office of Fair Trading are considering putting a ban on allocating them altogether to avoid any future discrepancies between lenders and customers. Essentially, customers should always put themselves and their requirements first and are advised to always ascertain which is the best deal on offer to them at any one time.