This is probably the biggest money-saving opportunity in the UK since The Citizens Advice Bureau brought the bad buy of Payment Protection Insurance (PPI) to the attention of the British public. It’s even time for some good news for people who have NOT been sold!
The story so far
The leading consumer organizations and advocacy groups, such as Which? and Money Saving Expert, published how ordinary members of the public could claim compensation for PPI missales. After a massive rearguard action waged by the Banks through the Supreme Court, the final victory was declared for the FSA and the Office of Fair Trading. The floodgates were then opened for massive compensation and more than two million (and the number of) people who had missold PPI coverage were paid out.
So, what’s new?
Just when it was thought that the PPI claims industry had gone to great lengths to disclose PPI compensation, the FSA decided in 2012 to conduct a final clean-up exercise. if they were sold incorrectly. The letters are expected to bring in up to a further £3bn in compensation payments, unbelievably this will double the amount already paid out to people who have claimed so far.
What about the people who are NOT mis-sold?
Good news also for mortgage payers who have purchased a version of this type of coverage called Mortgage Payment Insurance. This is a useful product for everyone, especially those with young families, who have no savings and need money to pay their big bills when their breadwinner can’t work. It also wasn’t widely misselling, despite having “payment protection” written in the product title. In fact, the FSA encourages people to consider this coverage as part of a financial protection packageas long as it is paid monthly and only for as long as the coverage is needed.
From April 2012, letters in the form of annual accounts must be sent to all holders of Mortgage Payment Insurance. Each statement will encourage people to shop around. This is because the FSA now insists that any statement must include the website address of the Money Advice Service, where price comparison tables allow consumers to compare coverage from different providers.
Why is this important?
There are huge potential savings as this coverage can be bought for much less these days. More competition, especially online, means consumers can save hundreds of dollars a year by switching coverage. The huge commissions paid to banks and mortgage lenders that drove up prices can be bypassed. Many online specialists offer a risk-free switching process that guarantees that coverage will not be interrupted. Banks are likely to see another drop in revenue if their customers cancel their bank policies and switch to direct providers for the same coverage with much lower premiums.
Mortgage payment protection insurance typically pays out up to £1,500 per month, for up to a year, if the policyholder is unable to work due to accident, illness or unemployment. With the total number of unemployed in the UK relentlessly rising to 3 million, not only is the threat of layoff rife, it is the length of time between jobs that can leave individuals and families in serious financial straits. This coverage is intended to bridge the gap between jobs and supplement any existing savings. Crucially, insurance benefits are not taxed and do not prevent the policyholder from claiming state benefits as well.
Mortgage payment protection insurance is one of the few affordable ways for an individual to cover the huge difference between being entitled to state benefits and the bills they have to pay. For example, the Job Seeker’s Allowance is currently £67.50 per week. However, the weekly cost of covering basic needs for the average family has been calculated at £500. There are large numbers of people who can take advantage of this cover, as well as the thousands who are already insured and can switch providers to save £100.
“For millions of people this year, at least one letter from their bank or building association will be good news. Because it should provide the opportunity to follow the advice of the Money Advice Service and compare what they pay each month compared to the Prices The fact that the Money Advice Service is an independent and impartial UK Government sponsored organization that publishes price comparison charts contributes greatly to the credibility of their message.” Dennis Haggerty Income Insurance Expert.
Compulsory annual accounts are received for the first time from April 2012. This includes thousands of people who had no idea they pay an insurance premium every month! This is because many mortgage lenders have liked to avoid this in the past. Previously, this premium was simply collected together with the customer’s monthly mortgage payments. Don’t be surprised if these statements lead to customers:
- Moving their Mortgage Payment Protection Insurance to much cheaper online providers
- Making new requests for compensation, while thousands more realize they mis-sold a product they didn’t need.
Further gloom for financial institutions is forecast for 2012 as the FSA continues to strive for transparency of product and pricing information for all.