Which? financial advice for the New Year warns tersely: “Watch out for payment protection insurance on credit cards and personal loans. It is unnecessary and expensive and gives limited cover.”

PPI is sold by banks or lenders when customers sign up to mortgages, credit cards or unsecured personal loans.

The product often covers only one year and costs £40 to £60 per month for £1,000 worth of monthly cover.

Worse still, insurers spend only 20 per cent of their PPI premium income on PPI claims – a statistic which spurred the Office of Fair Trading to refer the £6 billion-a-year market to the Competition Commission.

The Financial Services Authority is currently pursuing a dozen firms for mis-selling payment protection insurance.

But ill-informed Britons still buy seven million PPI policies every year, the Guardian notes, thus adding between 13 and 56 per cent to the cost of their financial arrangement.

© Adfero Ltd