Bank attacked over loan cover revamp
MONEY OBSERVER - 1ST AUGUST 2002
Standard Life Bank has terminated its mortgage payment protection insurance and replaced it with new cover, for which existing customers must re-apply and re-qualify. Simon Burgess, managing director of insurer Burgesses, branded the move ‘shameful’.
The insurance covers homeowners against accident, sickness and unemployment. It will often not cover borrowers with any pre-existing medical conditions that could see them take lengthy periods off work. Having to re-apply after years could mean many people now have such ailments and could face higher premiums or be refused cover completely.
Burgess said: ‘They are allowing a new insurer to cherry-pick the most profitable people to ensure a massive profit share goes back to the business. This is shameful, because customers with a pre-existing medical conditions or those in high-risk employment will never be eligible for cover when they need it most.’
This news comes in the wake of a survey by the Consumers’ Association magazine Which?, revealing personal loan payment protection insurance is frequently mis-sold. In more than 100 calls to personal loan providers, not one caller, unless prompted, was asked about their medical history, or was told pre-existing medical conditions wouldn’t be covered, as required by the Association of British Insurers and General Insurance Standards Council codes. This is worrying as this is a major reason why claims are refused.
The cost of in-build payment protection insurance was also of concern, with a £35 difference between the cheapest and most expensive monthly premium for payment protection insurance on a £5,000 unsecured loan paid back over three years. Intelligent Finance charged just £11, while Bank of Scotland levied £46 a month – double the £23 average. In the latter case, you would pay £947 in interest on the loan and a further £1,670 for protection for the three years, almost trebling the cost of the loan. The Financial Ombudsman Service dealt with more than 700 payment protection insurance complaints in the 2000-01 year.
The message is to read policy documents extremely carefully before committing to payment protection insurance. most policies stop paying out after a set period, usually 12 months, though for a higher premium this can be extended. The company that sells you the policy should explain the important cover details and draw your attention to any important or unusual exclusions.
