Loan insurance cover is ‘expensive and unsuitable’
THE SUNDAY EXPRESS - 15TH DECEMBER 2002
Borrowers taking personal loans and credit cards are being sold expensive and often unsuitable insurance at the same time, advisers warn.
Internet price comparison service Moneysupermarket says the payment protection insurance frequently sold alongside credit deals costs far too much.
Many lenders use the insurance to increase profits because of an ongoing price war in the debt market. The cover, also known as income protection or accident, sickness and unemployment insurance, is supposed to pay out if borrowers fail to meet debt repayments due to ill-health or because they lose their jobs.
But the premiums on the average personal loan can easily double the total amount repayable, Moneysupermarket says. And lenders often charge interest on premiums not paid upfront, increasing the cost even further.
Borrowers taking out a £5,000 loan over three years with Alliance & Leicester would pay £547 for insurance cover and up to a staggering £1,645 at Bank of Scotland.
Standalone policies are much cheaper: on the average repayment of £160 a month for a three-year £5,000 loan, independent broker Commitments would charge £216, less than half the premium at A&L. rival broker Burgesses charges only £259.
Richard Mason, Moneysupermarket ‘s director of personal loans and insurance, said: “This type of insurance serves a purpose and is appropriate for many borrowers but it is often overpriced and even sold to people who are not eligible to claim.”
The self-employed would rarely be able to claim on the unemployment insurance, for example, while the cover also excludes those with many pre-existing medical conditions.
However, salesmen rarely bother to check whether cover is appropriate and many lenders automatically include insurance when they offer quotes.
