It makes sense to shop around to avoid banks’ rip-off insurance policies
DAILY EXPRESS - 25TH FEBRUARY 2004
It is no surprise fat-cat banks’ record profits have outraged so many customers. Look at the advertising from companies such as Barclays and Royal Bank of Scotland – which between them have announced more than £12 billion in profits over the past 10 days – and it is tough to work out how they can be making so much money.
In fact it is a remarkable trick. Mortgages and credit cards represent a big chunk of leading banks’ business yet their profits have shop up despite a dramatic drop in the cost of borrowing over the past 12 months.
As with real magicians, however, the secret of the trick is sleight of hand. The banks may have cut the cost of borrowing but they have been raking in cash on other products – particularly the insurance policies they routinely sell to borrowers.
Take out a mortgage, loan or credit card and almost all lenders give you a hard sell on insurance – some lenders even require you to have protection in place so your repayments will be made if your circumstances change.
In some cases, the insurance can turn out to be a godsend. But that is no reason to pay through the nose for cover and buying through your bank or lender, rather than shopping around for the best deal from specialist insurers, is a sure-fire way to get overcharged.
For starters, avoid companies that force you to take out their insurance and make sure you check if a lender is automatically including the cost of cover in its quotes.
“Sometimes lenders stipulate customers must take out certain types of insurance with them.” Says Association of British Insurer’s spokeswoman Emma Quantrill. Others automatically quote for the cost of cover.
The policies offered by lenders often cost twice as much as the identical insurance – in some cases superior policies – from specialist companies.
Essex based broker Burgesses, says its research reveals many homeowners are paying thousands of pounds more than they need to for mortgage payment protection insurance for example. The average cost of this type of cover – which covers your mortgage repayments if you can’t work, either for health reasons or because you lose your job - when bought from high street banks and building societies is £5.98 for £100 or repayments covered. Policies bought from specialist insurers such as PayProtect can cost little fore than £3 per £100.
“Lenders charge a fantastic amount of money for this type of cover,” say Burgesses, Simon Burgess. “Borrowers can save thousands of pounds over the life of their mortgage by shopping around”.
Burgesses figures suggest that the average homeowner can save up to £2745 during a typical mortgage cycle by shopping around for the cheapest deal through an insurance broker – mortgage lenders are making profits of nearly £1.5 billion a year from mortgage payment protection insurance alone.
“Payment protection when sold with a loan, card or mortgage is perhaps the most expensive insurance you will ever buy.” Says Richard Mason from website Insuresupermarket.com, where visitors can compare the merits and costs of 85 different policies.
“The lenders involved will take a huge commission for selling you the policy and this is what bumps up the price.”
Lenders also use other types of insurance to squeeze extra profits out of customers. Many mortgage lenders also offer policies covering buildings and contents as well as other mortgage-linked products.
Lloyds TSB’s mortgage arm, Cheltenham & Gloucester, for example, offer mortgage payment protection insurance combined buildings and contents insurance and mortgage cover – the latter is a life insurance policy that also has optional critical illness and payment cover. Such lenders rarely offer the best deal. Financial services analyst Consumer Intelligence says there is a 345 per cent difference in home insurance quotes to cover the same property.
“Home insurance premiums have been rising and when it comes to renewing cover people should shop around to ensure they are being offered a competitive deal”. Says managing direct Ian Hughes.
“A £400 saving on home insurance is equivalent to about one month’s interest on a typical mortgage of £100,000”.
