PPI Compensation: What It Is and How It’s Calculated
If you were mis-sold PPI, you are entitled not only to a refund of how much the policy cost, but also to PPI compensation. So what is PPI compensation and how is it calculated?
This article will explain what PPI compensation is (as well as what it’s not); how PPI compensation is calculated; and what the average compensation for PPI is.
What PPI Compensation Is Not
PPI compensation can easily be confused with your PPI refund, but it’s very different. So let’s look first at that: your PPI refund.
Assuming your payment protection insurance was mis-sold, you are entitled to a refund of however much you’ve paid out for the policy over the length of its term. For example, if you’ve been paying £37 a month for the last 7 years, then the total amount you have paid for the payment protection insurance would be £3,108.
That figure is arrived at like this:
£37 x 12 = £444 (that’s how much has been paid for 12 months / one year).
£444 x 7 = £3,108 (that’s the total amount paid over the 7 years the premiums have been paid).
So in this case, the PPI refund this imaginary person can expect to win back is £3,108. Please keep in mind that this is a very simplistic example purely for illustration purposes; while calculating PPI refunds aren’t necessarily difficult, they usually aren’t quite that simple.
The important thing to understand right now, though, is that PPI refunds are different from PPI compensation.
What Is PPI Compensation?
PPI compensation is an amount of money that is a percentage of your PPI refund, to which it is added to give you your full refund figure. Its purpose is to put you in a similar financial position to what you would have been in had you not been mis-sold PPI and had your money in the bank earning you interest instead.
In short, it’s designed to put you back to where you would have been if you hadn’t been paying out for PPI that wasn’t right for you.
How Is PPI Compensation Calculated?
PPI compensation has been set by the Financial Ombudsman Service at 8%. So using the example from above, where the PPI refund is £3,108, we can now use that figure to see how PPI compensation is calculated and how much compensation should be due to this imaginary person:
£3,108 x 8% = £248.64
So the amount of PPI compensation due to this person is £248.64. The PPI refund amount is £3,108, which means the total amount due to be repaid is £3,356.64 (the refund amount of £3,108 + the PPI compensation amount of £248,64 = £3,356.64).
What Is The Average Compensation For PPI?
The average PPI payout across the board is £2,750. Knowing that PPI compensation is calculated at 8% of the refund amount, we can then know that the average compensation for PPI is £220 (£2,750 x 8% = £220).
How Much PPI Compensation Are You Due?
We’re on hand to give you PPI advice and to answer any questions you may have about the PPI claims process. If you just want to get an idea of how much your PPI refund should be, along with how much PPI compensation you should be owed on top of that, take a look at our PPI refund calculator guide that goes deeper into the calculation process.