The Competition Commission has confirmed that lenders will no longer be able to sell payment protection insurance (PPI) to their customers at the same time as granting them a loan.
The ban on so called point-of-sale selling was first proposed last year, but a legal challenge by Barclays had held the process up.
However, the commission says it will now move to introduce the curb, which means lenders will have to wait seven days before offering PPI to their customers.
Amongst the other measures to be introduced is a ban on single-premium policies, a requirement on lenders to supply personal PPI quotes, annual reviews and other measures to make it easier for consumers to compare and switch policies at a later date.
PPI covers repayments on credit products if the borrower is unable to make repayments due to accident, sickness, unemployment or, in many cases, death.
It is sold to cover a variety of financial products, but over 90% of PPI sold in the UK is either unsecured personal loan PPI, credit card PPI, mortgage PPI or secured loan PPI.
In its 2009 report, the commission found that the vast majority of the UK's more than 12 million PPI policies were sold at the same time as a consumer takes out a loan, credit card or other type of credit.
It found that many consumers were unaware that they could buy PPI from other providers, rarely shopped around to compare prices and terms and conditions of PPI policies, and rarely switched PPI providers.
As a consequence of the resulting 'point-of-sale' advantage, the commission said it made it difficult for other PPI providers to reach credit providers' customers.
And in the absence of such competitive pressure, consumers were being charged high prices.
"Having reviewed the evidence, we have come to a clear view that, overall, customers will benefit significantly from the market reforms we propose introducing for PPI products," said Peter Davis, inquiry chairman and the deputy chairman of the Competition Commission.
"In particular, these reforms will mean that PPI providers will, in future, face real competition where there is currently little. And, in consequence, the prices consumers currently pay for PPI will fall significantly."
The implementation date for the measures has yet to be confirmed.
As an alternative to PPI, why not consider taking out income protection insurance?
These policies supplement your salary, either with a lump sum or regular payments, in the event of an accident or sickness.
Income protection insurance is paid directly to you to cover a percentage of your income or set monthly amount should you be unable to work. You can chose how you spend your income protection insurance but it's probably best used to continue paying necessary items such as a mortgage, rent, loans or utilities. Taking out income protection insurance enables you and your family to avoid suffering financially should you fall sick or have an accident that may lead to periods of unemployment.
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