New regulations for the sale of Payment Protection Insurance (PPI), which provides insurance on mortgages and other loan payments, recently came into force with the second and final wave of measures from the Competition Commission following in April 2012.
The regulations were introduced to prevent the practices revealed in the 2008 scandal where thousands of consumers were found to have been mis-sold PPI. Already £215 million has been paid out to consumers this year with millions more to follow. These shocking discoveries have rocked consumer confidence when it comes to investing in Mortgage Payment Protection despite the uncertain economic landscape jeopardising homeowners' incomes.
Every property buyer has concerns about the scale and timeframe of the investment they are undertaking. Insurance which protects against loss of income in the event of accident, illness and loss of job can safeguard a first time buyer's home as well as providing reassurance and peace of mind.
However, a lack of understanding of recent developments in the Payment Protection sector and how it is regulated means that consumers may be reluctant to purchase insurance that provides ongoing income and reassurance when bad things happen to good people.
In today's unsettled economic climate, it is essential for buyers to be protection savvy and know theirs rights in order to get the best available deal. So here are some guidelines explaining how the new regulations can help property buyers make informed choices when choosing protection for their mortgage:
- Your mortgage provider can no longer sell you Income or Mortgage Payment Protection at the same time as your mortgage.
This rule will be enforced when the second, and final wave of measures are introduced in April 2012 but providers are already starting to adopt these practices in advance. It means that if you wish to purchase Mortgage Payment Protection Insurance from your mortgage provider you will now need to wait 24 hours from securing your mortgage before buying such a policy. Also, your provider cannot initiate a sale until seven days have passed from securing your mortgage. This measure is being introduced as some providers were failing to tell consumers that Payment Protection is optional on a loan or mortgage and can be purchased from a body other than your credit provider.
- Remember that single premium policies have almost all been stopped by providers.
Single premium policies mean that the full cost of a Payment Protection policy is added to the loan at the time of purchase. This can result in policy holders paying interest on their insurance premium so they can ultimately pay significantly more. This practice further complicated revelations from the 2008 mis-selling scandal on some loan PPI policies and was a policy that clearly worked in the interest of providers. Most single premium policies have now been withdrawn and you can now only be charged for your Payment Protection in monthly instalments, helping to ensure that you get the best deal and do not end up paying extra.
- Providers must now provide details of what proportion of their Payment Protection claim applications are successful.
If asked, providers are now legally required to provide a breakdown of how many of their claim applications are approved and how many are rejected. You should take advantage of this and ask your potential, or indeed existing, provider for this information. If they have a low successful claim rate, this suggests that their products may lack clarity or transparency as to what's covered. Although the regulations have helped to remove most unreasonable exclusions, you should clarify these with your provider, and it may be difficult to secure a pay-out when needed. Opt for providers with high claim rates, at around 9 in 10.
- All products can now be compared against the others in the market.
Since October 1, 2011, all Payment Protection providers will need to detail how much their policy charges for £100 worth of monthly benefit. This will enable you to easily compare Mortgage Protection products across the market and help you shop around for the best deal. If this information is not readily available, it is your right to request it. But do check exclusions and excess periods to ensure you are comparing like policies.
- Investigate other protection options.
The PPI mis-selling scandal has led to insurance providers introducing a range of new and more customer friendly products, which strive to protect consumers in innovative and different ways. Given the current unstable economic conditions, it may be a good idea for you to look into other forms of protection products which cover various aspects of your life. Income Protection Insurance, for example, can protect your income, in case of accident, illness or unemployment rather than just your loans.
- Payment Protection is optional.
While it has always been optional, in the past Payment Protection may have been mis-sold as obligatory when taking out a loan or mortgage. Providers are now required to ensure that you are aware that all Payment Protection policies, including Mortgage Protection, are optional. Additionally you can purchase Protection Insurance from a different provider other than your lender if you wish, and you are able to cancel a policy and switch providers. Payment Protection can be invaluable, particularly when safeguarding such an important asset as your home, yet it is your choice whether to invest.
By Paul Walsh, UK and Ireland chief executive of CUNA Mutual.