Is your mortgage payment protection insurance secure?
THE SUNDAY TELEGRAPH - 14TH JULY 2002
Every day seems to bring news of yet another wave of redundancies, so far including BT, Consignia, high street banks and many IT companies. Adequate mortgage payment protection insurance has never been more important.
This is why nearly 600 Standard Life Bank mortgage payment protection insurance customers are worried about a letter they received last month telling them that they must reapply for cover because the bank has switched underwriters from Axa to Pinnacle.
The customers fear that Pinnacle will be much tougher than Axa and that they may be rejected if their employer is seen as one that may lay people off, or if they have developed a serious illness since taking out the original policy.
Mortgage payment protection insurance pays a regular income to cover mortgage repayments and other overheads for victims of sickness, accidents or unemployment. It is not unusual for a mortgage lender to switch underwriters. Insurance is a competitive market and companies that sell mortgage payment protection insurance – mainly mortgage lenders and banks – can often find a better deal, both for themselves and their policyholders.
The Standard Life letter says: “Remember that, after 9th July 2002, your existing cover will be cancelled… Complete the enclosed application form and apply for your new mortgage payment protection insurance today.”
“This is a very unusual situation,” says Simon Burgess of Burgesses, one of the largest sellers of mortgage payment protection insurance cover. “Generally, when a company changes underwriters, the entire portfolio of customers is transferred en masse and individuals do not have to reapply.”
Standard Life denies that customers are being asked to reapply – in spite of the fact that the letter clearly asks them to do so and that they have to choose a new level of cover.
Insurance brokers say that Pinnacle has tough underwriting criteria and is not keen on insuring, for instance, financial services employees who work in the City.
The insurer admits that many customers will actually have to pay more for their cover. it had promised that no customers transferring from Axa to Pinnacle would be turned away unless they failed to take action by last Tuesday, 9th July. Just over half had done so by the deadline.
When asked why it had given them so little time to respond, a spokesman said, somewhat unhelpfully: “It’s in line with industry guidelines to give 30 days’ notice.”
There are several important issues here. People who took out their mortgage after 2nd October 1995, get no social security help with repayments for the first 39 weeks of unemployment or sickness. Around seven in 10 borrowers are in this position. Those who took out their mortgages before that date have to wait only eight weeks.
The Government has been leaning on mortgage lenders to offer affordable mortgage payment protection insurance cover to as many homebuyers as possible, particularly first-time buyers. But its efforts will have been in vain if insurers are going to “cherry-pick” – refusing cover to anyone whose job looks less than secure or whose health is not absolutely A1.
The Council of Mortgage Lenders and the Association of British Insurers have agreed a voluntary code that sets out basic terms and conditions for mortgage payment protection insurance. perhaps the time has come to get the underwriter to agree that, once a person has been accepted, they cannot be refused cover for unemployment if they are still in work on renewal – although an increase in premium might be applied if the risk has changed.
