Great Mortgage Insurance Blog

Summary
Protection Insurance is a necessary product, will it become more popular? The Insurance Companies are now taking the right steps. We hope they will be successful. Read this article to find out what is now happening in the insurance market.

Not many expert financial advisers would disagree that life cover should be the basis of most peoples financial planning whether it be safeguarding against the consequences of premature death, long term illness, accident or (particularly now with the arrival of the credit crunch) cover for unemployment.

Life assurance cover is justifiably the root of financial planning whether it be used to insure your home owner loan or give a tax free lump sum for your dependants in the event of your death. Unhappily, some other forms of protection insurance have a less enviable reputation. Payment Protection insurance has a name for being miss-sold and critical illness cover has formally suffered from uncontrolled policy exclusions which enabled the insurers to refuse a large number of claims, even if they seemed legitimate.

But over the last few weeks a shimmer of light emerged when Scottish Provident gave out its 1st half figures on the result of claims on its critical illness insurance policies. These figures appear to mean that at last the problem of unintended disclosure of medical information when the policy application is concluded, is being resolved.

Some years ago critical illness insurance claims were being time after time refused on the merest hint that the client had omitted any minor medical detail – even a foot infection or a sore throat! According to the figures presented by Standard Life, their claim refusals have come down sharply from 6.7% the previous year to 1.5% in the previous 6 months.

Why has this happened? LV, Scottish Equitable, Norwich Union, Scottish Provident, Axa, and Friends Provident  have initiated a collection of changes designed to diminish their refusal rates. They start off with an extremely clear explanation of the importance of full medical revelation right down to when they last visited their Doctor no matter how minor the reason. And some insurance companies such as LV get a medically trained person to telephone each potential client to discuss their medical history in detail. Then when the policy goes on risk, some insurance companies are reminding the insurance holders of the importance of full medical disclosure and giving them the option of correcting or adding the details on their submission.

If the new details are considered as increasing the insurer’s risk, then the life insurance company will certainlywithout doubt raise the monthly premium – but that’s certainly far better than paying the previous premium for years and years and then getting a claim refused.

The insurers should have taken  this action a long time ago as their slow coach method has damaged the public’s perception of protection insurance. But there is an undoubted need for protection insurance so let us hope that it achieves the recognition its so rightly warrants.

Summary
Some of the ways in which the insurance market is tackling mis-sold life insurance policies. The difficultieslinked to payment protection policies are highlighted.
The mis-selling of life insurance policies by a substantial number of mortgage lenders has to be tackled by the Government. Action has been taken by the Department of Trade and Industry, who have nearly completed their investigationinto the lock in of home and contents insurance with mortgages. An announcementbarring the practice is to be expected very soon.

However some senior figures in the insurance market have criticised the investigation for paying no attention to the selling of life insurance. The difficulty focuses around the practise of overcharging for life insurance, while not providing sufficient choice of productsgoods as part of their mortgage packaging. Edgar and partners, the independent financial adviser, says that the DTI’s understanding of mortgages fall short of the criteria wanted to make their investigation plausible. The result being that life cover has been overlooked.

 Mr Times says that just as some lenders have been asked to account for locking in building and content cover to a mortgage, so should the substantial number of providers who misinform customers intothinking that along with their mortgage they must take out life insurance. Mr Bolgergoes on saying that while providers may not insist on customers taking out life insurance, they can be convinced that they have no choice through the lender being economical with the truth.

60 per cent of life cover is sold by mortgagelenders, however it can be purchased through independent advisers or direct providers.

However a DTI spokesman has said that their investigation carries on into a huge range of insurance tie-ins. A provider who met Geoff Hoon has said that life cover has been glanced at, while more importance has been placed on home and contents.

The problem with consumers being forced to buy uncompetitive life cover and home insurance policies is just as important for both commodities.

The problems are much more serious with payment protection insurance. About half of all clients who have been influenced into taking out a  PPI may have been provided with the wrong product. In addition the majority of people who purchased one of these debatable insurances expect far more than they would in truth be given should they not be able to pay their bills.

A broad study has found that around 25 per cent of people are under the illusion that they will be paid a monthly wage from their Payment Protection Insurance policy, rather than understanding the policy would only cover their debts.

nother 20 per cent said they thought the policy would cover them if they could no longer meet their repayment obligations for any reason, and six per cent said they thought their medical expenses would be paid for if they became sick .

Several people thought the policy would keep going indefinitely to meet their ongoing debts, others thought their insurance would cover breakdowns and living expenses.

Yearly sales of Payment Protection Insurance policies are said to create payments of around 6.4 billion pounds for the insurance business. However an astounding 4 billion pounds of this is said to be pure profit. Studies suggest  that a number of banks can charge up to five hundred per cent more than others for similar.

The Office of Fair Trading is studing the sale of Payment Protection Insurance preceding complaints from the National Consumer Council and Citizens Advice. It recently empasized disquiet that banks are enticing customers by advertising deceptively cheap loans and then hammering them with huge additional costs by selling expensive Payment Protection Insuranceas part of the deal.

As a consequence, a loan which seems to provide good value becomes far more expensive.