Selling mortgage payment protection when the feelgood factor is highand unemployment is low is liketrying to sell umbrellas when the sun shines. While stopping short of a rain dance, the financial services industry has done what it can to remind consumers that the weather can change, and that borrowers can then expect little shelter under the state benefit system. But recognising this does not inevitably lead to buying mortgage payment protection insurance (MPPI) - or accident, sickness and unemployment (ASU) cover, as it is also known.
The introduction of minimum standards - such as paying benefits for at least 12 months - has helped, but there are still enough questions about this type of policy to make it more than the "tick this box" decision at the end of a mortgage interview that it can sometimes appear. Walter Merricks, the chief financial ombudsman, says matters have improved since he expressed serious doubts about the policies two years ago, though they remain expensive and are sold mainly by people who are not insurers. He believes further improvement should come once the General Insurance Standards Council requirements on minimum training become fully effective.
"It does help if you don't sell it to people who are not eligible to benefit from it," he comments drily. Ensuring suitability is the key with this as with other financial products. Even the keenest advocates of MPPI estimate that it will be suitable only for about half of home loans advanced. If you are a mortgage-holder, how can you tell which half you should be in?
As a first step, borrowers need to decide what cover they need. It is unlikely to be suitable for people taking out a buy-to-rent home loan, for example, because they are relying on rental income to cover the mortgage payments. Those who already have a significant equity stake in their property and those who have little borrowing compared with their income are low-risk categories of home owners, as are those who have substantial savings.
Those with a flexible mortgage, where they can take a payment holiday, may also be less at risk of losing their home if financial difficulties arise. The same is true of those in jobs or professions where their skills are such that they would be unlikely to be unemployed for more than a month or two. Others who should think twice are the self-employed. Though policies can cover them, the conditions in which they pay out - the baseline standard says that someone needs to have ceased trading involuntarily and declared this to the Inland Revenue - may mean that in practice other forms of cover, such as permanent health insurance, may be more appropriate.
"If your company loses 20 per cent of its business and you get made redundant you can claim," says Ray Boulger of mortgage broker John Charcol. "But if you're self-employed you can lose 90 per cent of your business and still not be eligible for a payout." Another element in assessing the relevance of MPPI is what cover the home-owner may already have, either through an employer or through existing policies. This may suggest that either the accident-and-sickness element of the policy or the unemployment protection alone makes sense.
A self-employed builder, for example, might want the accident and sickness cover, while a civil servant with generous in-service benefits might need only protection against loss of job. Many, but not all, policies allow a split, though it may not be offered unless borrowers ask specifically for it. Where MPPI is the right form of protection, there remain two issues to consider: the cost, and minimising the prospect that a claim falls foul of the small print. Most policies are priced in the £4-£6.50 range for £100 of cover each month, so protection for a mortgage costing £400 a month would be £16-£26. Market Harborough Building Society is the exception, offering cover at £1.75 per £100 of cover each month to its borrowers, in a move that helps its arrears and repossession levels as well as its borrowers.
Halifax, the UK's largest mortgage lender, charges £6.06 per £100 of cover each month with a 24-month benefit period. This is the ASU element of its total mortgage protection plan launched earlier this year. Because MPPI is an ancillary product, consumers are less likely to shop around. Pursuing the lowest MPPI price is probably a less worthwhile way to spend time when buying a home than chasing the best mortgage deal.
Far more critical to whether the policy is worthwhile is how likely a claim is to be accepted. Patrick Bunton of mortgage broker London & Country advises raising specific issues before buying. "Once you've identified the circumstances in which you would want to call on the policy, put it in writing and ask what your claims position would be if you were an existing policyholder," he says. There is little point in an umbrella that lets in the rain.
The introduction of minimum standards - such as paying benefits for at least 12 months - has helped, but there are still enough questions about this type of policy to make it more than the "tick this box" decision at the end of a mortgage interview that it can sometimes appear. Walter Merricks, the chief financial ombudsman, says matters have improved since he expressed serious doubts about the policies two years ago, though they remain expensive and are sold mainly by people who are not insurers. He believes further improvement should come once the General Insurance Standards Council requirements on minimum training become fully effective.
"It does help if you don't sell it to people who are not eligible to benefit from it," he comments drily. Ensuring suitability is the key with this as with other financial products. Even the keenest advocates of MPPI estimate that it will be suitable only for about half of home loans advanced. If you are a mortgage-holder, how can you tell which half you should be in?
As a first step, borrowers need to decide what cover they need. It is unlikely to be suitable for people taking out a buy-to-rent home loan, for example, because they are relying on rental income to cover the mortgage payments. Those who already have a significant equity stake in their property and those who have little borrowing compared with their income are low-risk categories of home owners, as are those who have substantial savings.
Those with a flexible mortgage, where they can take a payment holiday, may also be less at risk of losing their home if financial difficulties arise. The same is true of those in jobs or professions where their skills are such that they would be unlikely to be unemployed for more than a month or two. Others who should think twice are the self-employed. Though policies can cover them, the conditions in which they pay out - the baseline standard says that someone needs to have ceased trading involuntarily and declared this to the Inland Revenue - may mean that in practice other forms of cover, such as permanent health insurance, may be more appropriate.
"If your company loses 20 per cent of its business and you get made redundant you can claim," says Ray Boulger of mortgage broker John Charcol. "But if you're self-employed you can lose 90 per cent of your business and still not be eligible for a payout." Another element in assessing the relevance of MPPI is what cover the home-owner may already have, either through an employer or through existing policies. This may suggest that either the accident-and-sickness element of the policy or the unemployment protection alone makes sense.
A self-employed builder, for example, might want the accident and sickness cover, while a civil servant with generous in-service benefits might need only protection against loss of job. Many, but not all, policies allow a split, though it may not be offered unless borrowers ask specifically for it. Where MPPI is the right form of protection, there remain two issues to consider: the cost, and minimising the prospect that a claim falls foul of the small print. Most policies are priced in the £4-£6.50 range for £100 of cover each month, so protection for a mortgage costing £400 a month would be £16-£26. Market Harborough Building Society is the exception, offering cover at £1.75 per £100 of cover each month to its borrowers, in a move that helps its arrears and repossession levels as well as its borrowers.
Halifax, the UK's largest mortgage lender, charges £6.06 per £100 of cover each month with a 24-month benefit period. This is the ASU element of its total mortgage protection plan launched earlier this year. Because MPPI is an ancillary product, consumers are less likely to shop around. Pursuing the lowest MPPI price is probably a less worthwhile way to spend time when buying a home than chasing the best mortgage deal.
Far more critical to whether the policy is worthwhile is how likely a claim is to be accepted. Patrick Bunton of mortgage broker London & Country advises raising specific issues before buying. "Once you've identified the circumstances in which you would want to call on the policy, put it in writing and ask what your claims position would be if you were an existing policyholder," he says. There is little point in an umbrella that lets in the rain.
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