Two surveys, one message…shop around for your insurance policy
YORKSHIRE POST - 27TH APRIL 2002
Two interesting surveys were highlighted in the Press last week that warned mortgage borrowers of the dangers of paying too much for their insurance.
First, Burgesses, an insurance provider specialising in mortgage payment protection insurance, accused mortgage lenders of “ripping off their borrowers” with this form of insurance.
A mortgage payment protection insurance policy pays a monthly income in the event of accident, sickness and unemployment after a waiting period of between one to two months. The policies are designed to help borrowers to continue to make their mortgage payments when they are unable to work due to illness or redundancy for one or two years. Around a fifth of all mortgage holders have mortgage payment protection insurance cover, with about 2.35 million policies in force, says the Council of Mortgage Lenders and the Association of British Insurers.
Burgesses claim that many banks “cream off” 70 per cent commission based on the annual premiums of policies sold through their branches. They claim that Cheltenham & Gloucester, who typically charge £7.25 for every £100 of mortgage payment protected, are among the most expensive on the High Street. They found the average cost to be £5.80 per £100 which means that the total mortgage payment protection insurance cost for a £500 per month mortgage would be £8,700 over 25 years.
It’s possible to purchase similar contract for as little as £4.75 per £100. This is the equivalent of saving over a penny for every pound of cover, perhaps one way of recouping some of the extra 1 per cent in National Insurance we’ll be paying in future! In total, this would save more than £1,300 during the policy term.
The second survey was by Brigham Brining Direct and looked at the cost of life assurance from six of the major banks and building societies. Brigham Brining Direct are independent life assurance specialists who can shop around and search through hundreds of different premiums from major insurers, such as Scottish Widows, Legal & General and Norwich Union. The survey showed that even greater discrepancies in premiums are being charged for mortgage related life assurance and huge savings can be made during the term of a mortgage.
Life assurance policies are often required to be in place before a bank or building society will lend you money. This had led to many lenders marketing their own life assurance policies, often at inflated premiums. They have identified that they can make big profits if they can persuade the borrower to purchase their own branded policy rather than one from another insurance company.
The average monthly premium being charged by the six lenders for a 44-year-old man looking for £100,000 over 20 years was £31.18. Brigham Brining Direct could save £10.48 each month, equating to over £2,500 during the term of the policy, for identical cover.
Mortgage lenders have seen their profit margins squeezed over recent years as consumer pressure has forced them to introduce changes such as daily interest calculations for their mortgage payments. This has driven them into finding alternative income streams through areas such as mortgage and household insurance.
They rely on customer apathy to get away with charging inflated premiums for cover that is easily obtainable at lower costs. While it may seem more convenient to cover all your mortgage needs with the bank it certainly isn’t in your best interests.
If you think you may be paying too much for your mortgage insurance, it’s not too late. There is often no penalty for moving your insurance to a cheaper company and you can start to save money within weeks or even days. Making one telephone call to an independent adviser could start the process today.
