Payment protection insurance has a troubled history, and it still shapes what you're being offered today

Payment protection used to travel with the loan. A mortgage, a credit card or a personal loan would arrive with a protection policy built into the sale, offered at the same desk and signed in the same sitting as the borrowing itself. That bundling is where the trouble started.

Why selling it alongside the loan caused problems

When a protection policy is offered in the same conversation as the mortgage or credit agreement, the person selling it has every reason to include it and little reason to check whether it fits the person buying it. A policy that only pays out if you're employed and working a set number of hours a week was sold to people who were self-employed, retired or already out of work. The cover was much the same for almost everyone; the circumstances of the people buying it were not.

What changed

Firms were required to look again at how this cover had been sold and to put things right for people who'd bought a policy that was never going to pay out for them. The practical effect for anyone offered payment protection now is that the checks which were once skipped have to happen before you sign.

If you want to work through those questions against the policy you've been offered, the payment protection checklist sets them out in order. If you're not sure whether you already hold cover that would do the same job, the alternatives and existing cover page is the place to check that first.

When the regulator (the FSA, now the Financial Conduct Authority) looked at payment protection insurance sold across loans, credit cards and mortgages, it did not treat every version of the product the same way. In its 2010 policy statement (FSA PS10/12), it described mortgage payment protection insurance specifically as lower risk than the other types of PPI sold alongside loans and credit cards.

That distinction mattered because the wider mis-selling problems, cover sold to people who could never claim on it, exclusions that were never explained at the point of sale, turned up across PPI generally. The regulator's finding was that mortgage payment protection carried these problems to a lesser degree, not that it was free of them.

Still not without risk

The same assessment that called mortgage payment protection lower risk also said it was not without risk. A policy can still have an initial exclusion period, still exclude a pre-existing condition, and still fail to cover someone who is self-employed or working reduced hours, whatever type of PPI it is.

That is why being offered the lower-risk version of this product is not the same as being offered cover that will definitely pay out for you. The questions worth asking are the same ones the regulator found were routinely skipped: whether you are eligible, what the policy excludes, and what you already have in place. The payment protection eligibility checklist works through those in order, using the questions on your own paperwork.

When regulators looked at how payment protection had been sold, the same four gaps turned up again and again. None of them are complicated. They are the ordinary questions a seller should have asked before taking someone's money, and in a large number of cases they simply were not asked.

Eligibility not checked

Policies carry conditions on who can claim: minimum hours worked, an age range, sometimes employment status. A seller who does not ask these questions can sell a policy to someone who could never claim on it, through no fault of the buyer.

Your age and employment status are usually set out near the start of the policy document, under a heading such as eligibility or who can take out this policy. It is worth checking your own details against that list before you rely on the cover.

Cover that did not apply to the circumstances

Accident, sickness and unemployment cover (ASU cover) is really three separate promises bundled together. The unemployment part, for instance, does not apply to someone who is self-employed, because self-employed people are not made redundant in the way the policy means.

Buying ASU cover while self-employed can mean paying for a third of the policy that was never going to pay out. The document will usually say which parts apply to which kind of worker, so it is worth reading that section against your own employment status.

Exclusions not explained

Every policy has limits on what it will pay for, and some of the most significant ones are easy to miss on a quick read. A pre-existing condition, something you already had or knew about before taking out the cover, is commonly excluded altogether. An initial exclusion period sets an earliest date you can claim, even if the policy has already started.

• Pre-existing conditions, often excluded regardless of how long the policy has run
• The initial exclusion period, the gap before any claim can be made
• Conditions covered only while you are under the care of a specialist

These are the kind of details a seller can mention in passing without the buyer taking them in, particularly when there is a stack of other paperwork to sign at the same time.

Existing protection ignored

Many buyers already had some protection in place, through an employer's sick pay scheme, an existing income protection policy, or simply the Support for Mortgage Interest loan available through the benefits system. Selling payment protection without asking what the buyer already had meant some people paid twice for the same risk.

It is worth working out what you already hold before deciding whether a new policy adds anything. The guide to what else is available if you could not pay the mortgage sets out what employer sick pay, the state and existing policies typically cover.

Each of these four gaps is now a specific item you can check for yourself against the paperwork in front of you. The payment protection eligibility checklist works through them one by one, using the same checks, applied to your own circumstances.

The 2019 claims deadline closed the window for bringing complaints about payment protection sold in the past. It applied to how those policies were sold, so it has no bearing on a policy you're being offered today.

The deadline is about old sales

A policy offered to you now sits outside that deadline entirely. That doesn't mean the checks the regulator was concerned about have already been done for you. Eligibility conditions, exclusions and overlaps with cover you already hold can still be missed on a sale that happens this week, in exactly the ways they were missed before.

What to check instead of relying on the deadline

Treat the deadline as a closed chapter. The questions it raised are still worth putting to your own policy before you sign.

• Work through the payment protection checklist against your own document
• Check what you already hold through work or the state before deciding, using the guide to alternatives and existing cover