Experts warn that costly mortgage cover could be useless
THE SUNDAY TIMES - 12TH SEPTEMBER 2004
Nationwide has raised the premiums on the insurance it sells to cover mortgage payments by nearly 10%.
Borrowers are often pressured into buying mortgage payment protection insurance from their lender. But mortgage firms charge up to a third more than brokers and the cover may even be useless for some.
Mortgage payment protection insurance also known as accident, sickness and unemployment insurance, is designed to cover your mortgage payments for up to a year if you lose your job or cannot work due to illness..
Firms charge a flat rate regardless of age, Nationwide for example, has increased its premiums form £4,99 per £100 of cover to £5.39. Someone paying £500 a month on a mortgage would be charged £26.95 a month.
Abbey’s premium is £29.75 for the same cover and Halifax charges £30.30. But you could cut your monthly premiums to £21.25 with a policy from Burgesses a broker.
Adam Clark at Lifesearch, another broker, said: “Always check that you need the cover before you buy and that you will be eligible to claim.”
For example, your employer may offer a generous sick-pay scheme that pays some or all of your salary for a year. Most mortgage payment protection insurance policies will pay out for only up to 12 months of sickness, so you would be doubling up on cover. It is not possible to delay the payout so that it starts once your sick pay scheme has stopped.
Many people are also excluded from the unemployment benefit.
Alan Mudd at Savills Private Finance, another broker, said: “Some policies will not pay out if you get a lump sum when you are made redundant. If you lose your job, you may find conditions attached, such as visits to the job centre to show you are looking for work.”
Self employed and contract workers could also be excluded from unemployment cover. The Financial Ombudsman Service deals with about 1000 cases a year where self employed workers have been mis sold cover for which they are not eligible.
If you are self employed, policies will usually pay out only if you wind up your business and report this to the Inland Revenue.
Policies typically demand that contract workers have been employed by the same firm for two years and have had their contract renewed.
Even if you had a permanent contract before you were made redundant, there is usually a 30 or 60 day deferral period before a policy pays out.
Ray Boulger of Charcol, another broker said: “the real issue is not the risk of you losing your job, it’s the risk that you won’t find a new one. In many cases, people wouldn’t be out of work for long so opting for mortgage payment protection insurance could be an unnecessary expense.”
If you feel you do not need protection against unemployment, but would like insurance against ill health consider income protection, also call permanent health insurance. This pays a monthly income – usually 50% or 60% of your salary – if you stop work due to sickness or injury. It kicks in after a deferred period and you can usually choose how long this is.
PHI also had the advantage of paying out indefinitely, so if you are off work for longer than a year, you will continue to receive a monthly income.
Clark said: “The self employed should always consider PHI because they won’t receive any sick pay form and employer. This means their income is likely to be affect as soon as they cannot work.”
