Cover story
WHICH? - 1ST JUNE 2004
Even though the mortgage industry has introduced minim standard for mortgage payment protection insurance, many lenders’ policies still offer a poor deal. The minimum standards, which took effect in July for existing policyholders, are in response to the government’s attempts to encourage people to take out insurance to protect their mortgage payments in the event of accident, illness or unemployment.
When the new standards were introduced, some insurers took the opportunity to increase their prices. Inga West signed up to Woolwich’s Budget Payment Protection Plan in February 1996. Woolwich recently wrote to her saying that it was making changes to the policy so that I complies with the new minimum standards. Her level of cover would be upgraded so, the Woolwich informed her, there would be a ‘slight increase’ in the premium. In fact, Inga’s premium increased by 50 per cent – from £31.46 to £47.19 a month. Inga decided to cancel her policy altogether.
Even though most insurers upgraded their cover without putting up their premiums, many mortgage payment protection insurance policies remain poor value. One of the problems is that there is not a wider choice of policies available to you. While most mortgage lenders offer cover, if you are not happy with the policy your lender offers, it’s not easy to switch to another major insurer. Nationwide’s policy, for example, is one of the cheapest from the major high street lenders at £4.99 per £100 of cover. However, Nationwide offers cover only to its own borrowers – so nobody else can switch to it. The same applies to most of the major mortgage lenders.
Having said this, there are a number of smaller provides that offer good-value standalone policies which are available to all mortgage borrowers. One provide – Burgesses – has launched a new policy and is offering three months’ free cover to encourage you to switch. It will pay any costs involved in the transfer from existing policies. The monthly premium is £4.40 per £100 of cover. CGU Direct also offers a good-value standalone policy – it costs £4.39 per £100 of cover.
Besides Burgesses and CGU Direct, Bennett Gould, John Charcol and Sentinel UK offer free standing policies that are worth considering.
