Payment protection insurance for mortgage, loan or credit card repayments can offer a lifeline and cover expenses when people are made redundant or beome unable to work because of illness or an accident.

However, moneysupermarket.com’s findings show that only one in seven Brits (14 per cent) consider PPI crucial and already have it, and seven per cent said that the uncertainty of the current economic climate had prompted them to consider buying it. Almost a quarter of people (24 per cent) do not even know what it is.

“A tenth of people would only buy a PPI policy if they felt their job was under threat,” says Emma Walker, head of protection at moneysupermarket.com. “The best time to buy a policy is when you least expect to need it – the small print will usually reveal insurance of this kind is void if the policyholder is aware of impending unemployment.”

The research revealed that applications for PPI policies are currently dominated by people working in the finance and business sector (39 per cent), followed by the construction industry (16 per cent) – both industries have been hit by job cuts recently.

Ms Walker highlighted the importance of working out what type and level of cover are appropriate for individual circumstances: “Be upfront with your adviser about your situation and get as much information on your policy as possible so you’re not in for any shocks. Exclusions and caveats are commonplace in a policy.”

Meanwhile consumer watchdog Which? has called on the Financial Services Authority (FSA), demanding a complete overhaul of the payment protection insurance market.

In the past, a considerable number of consumers have been sold PPI without being aware of it or have not been thoroughly informed about the numerous exclusions on the policy. For instance, people over a certain age or self-employed people might not be able to claim on a policy.

Which? research shows that there have been as many as two million cases of mis-sold payment protection insurance to people who may never be able to make a claim. Quoting the example of a couple who paid £22,568 in payment protection insurance for a £56,000 loan, Which? also highlights that many policies are unduly expensive.

Which? personal finance campaigns manager, Doug Taylor, says: “Slapping firms on the wrist with large fines is a start but doesn’t go far enough. The fact that firms are still being fined for PPI failings shows that the problem won’t go away on its own and PPI’s relatively low profile means the number of complaints doesn’t necessarily reflect the number of mis-sold policies.”

“The FSA must do more to deter firms from mis-selling in the first place, ensuring that all victims of mis-selling are automatically compensated with a fair and robust system.”

© Fair Investment Company Ltd