What’s your protection factor?
THE OBSERVER - 3RD OCTOBER 2002
If you want insurance to cover your mortgage payments, choose with great care.
Insurers and lenders must be feeling rather pleased with themselves. In return for coming up wit ha revised selling code and a baseline standard for mortgage payment protection insurance, they have secured blessing for a product that, 18 months ago, the Welfare Reform Green Paper criticised for providing ‘too narrow a range of cover, for too short a period.’
The insurance, known as mortgage payment protection insurance, aims to meet your mortgage payments and other mortgage-related bills if you are unable work because of accident, sickness or unemployment. Lenders like it because of the commission they can earn. The Government likes it because it knows that state help in the form of Income Support for mortgage interest is limited, even for the estimated 20 per cent who are likely to qualify for it. For the remaining 80 per cent – those the Government estimates have savings of £8,000 and/or a working partner – state help is non-existent. Not that many people realise this.
So should you rush out and buy mortgage payment protection insurance? Probably not if you are one of the 45 per cent of borrowers that the Council of Mortgage Lenders estimates could cope without it. This is likely if you could manage for 12 months – the maximum period of time that the baseline standard requires policies to pay out for – by relying on savings, a partner’s income, sick pay from your employer or a redundancy pay-off.
Are you eligible for mortgage payment protection insurance? Whether you could cope for 12 months or not, it may not be an option. To have any hope of the insurance paying out, you have to satisfy the ‘eligibility criteria’. Don’t bother applying if you are over 64, you’re not working, you work fewer than 16 hours a week, you’re a temp, you do seasonal work, or you haven’t been in continuous full-time employment for at least six months. Employees on fixed-term contracts and the self-employed are eligible to apply, but the Association of British Insurers says that they ‘still need to be careful’. The baseline standards say that there should be no restrictions on cover for workers on two-year contracts. Those on a one-year contract must be covered if the contract has been renewed at least once. Two renewals are required for contracts lasting a minimum of six months.
The self-employed should avoid any policy where the unemployment cover is ‘totally unsuitable’. The baseline allows a claim for unemployment to succeed only if you have ceased trading through no fault of your own, have told the Inland Revenue and have registered for JobSeeker’s Allowance.
Unemployment cover, however, may be all that an employee needs. Employees should think twice before paying for accident and sickness cover, especially if their employer has a decent sick-pay scheme.
Most policies follow the baseline standards for eligibility criteria and exclusions for contract workers and the self-employed, but many offer better terms than the baseline, so it’s worth checking the following:
• How long you have to be off work before you have a valid claim;
• How long you must wait after taking out the policy before unemployment cover kicks in;
• Whether you can keep the policy going if you change lenders;
• How the insurer deals with claims relating to pre-existing medical conditions. Most exclude illnesses you’ve suffered in the last 12 months before taking out the policy.
