Mortgage payment protection insurance
Mortgage Protection from British Insurance
You want to buy mortgage protection insurance cover? That’s probably an excellent and very prudent idea. The problem is going to be that there will be all manner of people rushing to sell mortgage protection to you and it could prove difficult finding the right one to choose.
First of all, what does it do? Mortgage protection provides reassurance that, in the event of your sickness, injury or unemployment, you will get assistance with your mortgage-related outgoings. This includes not just the mortgage repayments themselves, but, if you have an interest-only mortgage, the payments to the savings or investment scheme that will repay the loan principal when the mortgage comes to its full term. Your level of cover should also include the payments you make for any life insurance and for buildings and contents insurance.
Most forms of mortgage protection insurance cover will have a maximum amount of protection that can be offered. This is likely to be somewhere between £1,000 and £2,000 or, alternatively, may be expressed as a percentage of your normal gross monthly income (around 65% of this would be typical).
Payout of benefits usually takes place over a 12 to 24 month period, depending on the plan. Benefit eligibility typically kicks in from 30 to 90 days following initial enrollment. One about one in three Brits currently have mortgage payment cover, but about 60 per cent of new homeowners are acquiring the protection, an indication that consumer awareness of its benefits is improving.
With State assistance only available for those who meet strict criteria, consumers are also beginning to come to the realization that the State assumes little to no responsibility for financial support during unemployment. Homeowners need to protect themselves. Mortgage payment protection insurance, canl offer great benefits and good value as well as peace of mind.
Although it might appear to be stating the obvious, make sure to watch out for how much you’re being asked to pay for your mortgage protection insurance cover. Mortgage lenders and banks, in particular, have devised all manner of (fair and foul) means to take your eye off this particularly important ball. One of the favourites is to include the mortgage protection insurance premiums in your monthly mortgage repayments. This might be a convenient way of paying, and would give you one less bill to remember having to pay, but be sure to know just how much the mortgage protection insurance premiums actually are! Obviously, it will be impossible to make any kind of comparison with equally effective and potentially much cheaper, standalone products if you’re not clear how much you’ll be paying.
Similarly, you may wish to avoid those offers that include a one-off, upfront “single premium” payment for the insurance. Once again, it’s become a popular way of disguising the true cost of the insurance and prevents you from weighing up its value against comparable products from other, independent providers.
Mortgage payment protection insurance (MPPI) is actually one of three common types of insurance that make up a portfolio of products known as payment protection insurance. The other two covers are known as income payment protection and loan payment protection. The benefits of these are very similar to the mortgage payment insurance, but there are some distinctions among the three with regard to purpose and benefits.
Loan payment protection is similar to mortgage payment insurance, with a maximum coverage amount that is set by the provider. Loan payment products are also sold in combination with various types of borrowing.
Income payment protection is the third and probably the simplest to understand of the payment covers. It provides basic monthly income support, typically of up to 50 per cent of normal monthly income for the insured. For many people, this monthly support is crucial in terms of meeting monthly income and expense requirements. This product is often confused with income protection, an insurance product with a similar name, but very different purpose. Income protection is a more expensive, long-term assistance offering that provides benefits up to retirement age for many people.
The payment protection industry has come under fire in recent years because of the mis-selling practices common to many large banks and High Street lenders. Consumer group the Citizen’s Advice brought a super complaint to the Office of Fair Trading (OFT) in light of many customer allegations in 2005. The group alleged among other things that the institutions were selling the payment covers to people that were not aware they were ineligible for benefits of the protection.
Payment protection is intended for full time employees, but some banks were selling the products to retirees, part time employees, or people with existing medical conditions, who are, in most cases, also ineligible.
Among the other complaints brought to the OFT were mis-selling practices used by lenders selling insurance protection in combination with their loans. While this practice itself is not unethical, the methods used by some sellers have been. Some lenders pressured borrowers into believing the protection is a required part of the loan purchase. Others have more unscrupulously padded the loan repayment costs with expensive premiums, in order to hide the cost from the borrowers. This has led to many loan customers having much higher repayment costs than they should.
As a result of the complaints, the OFT and the Financial Services Authority (FSA) investigated the payment protection insurance industry. The FSA used fines and sanctions to punish the institutions that it found had been using mis-selling tactics. The OFT appointed the Competition Commission to conduct further research and it is set to respond with its results in early 2009. Because of the intense scrutiny, many banks and High Street lenders have backed off from unethical practices. However, many consumer groups are telling loan shoppers to be aware that some online lenders have picked up some of the same habits when combining loans and insurance protection.
However, out of every negative comes some good and the mis-selling ‘scandal’ has educated many consumers as to what they need to look out for when buying mortgage protection and payment protection insurance. The importance of looking to standalone insurance providers has come to the fore, with payment cover plans are typically 40 to 80 per cent less in premium costs than banks and lenders offer.
