Moving on
THE MORTGAGE EDGE - 1ST JULY 2002
Recommending the right mortgage payment protection insurance policy for your clients may be more important than you think.
Advising clients to take out mortgage payment protection insurance with their mortgage may be second nature to many brokers, but recommending the right cover is vital.
Although the cover is designed to provide customers with the security of knowing they will be able to pay their mortgage if they fall ill or lose their job, when it comes to mortgage payment protection insurance it seems you don’t always get what you pay for.
Swap-shop
Standard Life Bank has recently come under fire after changing the underwriter of its mortgage payment protection insurance from Axa to Pinnacle Insurance. customers were told that their existing cover would stop shortly and were asked to transfer instead of one of three deals that the bank had arranged with Pinnacle Insurance.
However, those customers who transferred would have seen the cost of an mortgage payment protection insurance policy with a 60-day deferment period rise from £3.71 per £100 with Axa to £4.70 per £100 with Pinnacle Insurance.
Miriam Hils-Cosgrove, spokesperson for Standard Life Bank, would not elaborate on the benefit to customers of transferring from Axa to Pinnacle, but states that “the cost of our mortgage payment protection insurance remains very competitive in comparison to the industry average of £5.50 per £100 of mortgage repayment for the same deferment period.”
Customers had to transfer their policies before the 9th July. Those who didn’t would have needed to reapply and requalify for mortgage payment protection insurance, although the ban has denied claims that the move will allow the new insurer to “cherry-pick the best and most profitable people.”
Because Standard Life Bank’s mortgage payment protection insurance policies are tied, customers who decide to change their mortgage to another lender will also have to take out a new mortgage payment protection insurance policy with an alternative insurer.
Tied down
Simon Burgess, managing director of payment protection insurance broker, Burgesses, believes the situation highlights the importance of making sure clients have independent and fully-portable mortgage payment protection insurance or accident, sickness and unemployment policies, that can be taken with them it they move their mortgage to a new lender.
According to Burgess the majority of lenders’ policies are tied, which means customers would need new mortgage payment protection insurance if they moved their mortgage. if their health or working situation has changed for the worse in the meantime, it could affect their chance of being approved for cover.
He says: “Customers with a pre-existing medical condition, or those in high-risk employment such as postal workers, will not be eligible for cover when they need it most.”
Break free
Brokers can also offer clients the benefit of cheaper premiums and better cover when taking out mortgage payment protection insurance, according to an expert. Mike Williams, chief executive of British Insurance Brokers’ Association (BIBA), says: “Brokers provide payment protection insurance policies that are better in price and cover than lenders and are clearly putting a fundamental element of best advice back into the sale of mortgage payment protection insurance.”
Profiteering
When it comes to cost Burgesses believes lenders are “profiteering at the expense of their borrowers”. He says: “We all obtain this cover from the same source, the only difference is that some brokers retain less commission and so are able to purchase more benefits for their clients whilst maintaining comparity of cost.”
Not surprisingly Hils-Cosgrove does not believe this to be the case. She says: “The price of mortgage payment protection insurance depends upon a number of factors, such as the level of cover, the benefit period and the length of the deferment period. These are the main factors which influence the price, not the distribution channel.”
So what?
But do homeowners even care if they have mortgage payment protection insurance, and if so, where it comes from? According to the recent survey by the Council of Mortgage Lenders (CML), just 31 per cent of borrowers in the UK have taken out mortgage payment protection insurance. for many brokers the main challenge may lie in making sure customers are aware of the importance of mortgage payment protection insurance in providing financial protection if they are unable to pay the mortgage due to sickness or unemployment. Under the terms of best advice, brokers have a legal obligation to advise clients to take out mortgage payment protection insurance with their mortgage. “Brokers must offer clients mortgage payment protection insurance if they are taking out a mortgage,” says Burgess. “Failing to do so could result in the broker being sued if the client did get into problems and couldn’t pay the mortgage.
“If the client still decides not to take out accident, sickness and unemployment or mortgage payment protection insurance it is not your responsibility. However, you must at least make clients aware of mortgage payment protection insurance as a protective measure,” he adds.
