Personal Finance: An Ugly Home Truth ; Homebuyers Are Being Encouraged to Protect Their Mortgage Payments with Insurance. but Some Policies Are Useless, Writes Paul Gosling
Gosling, Paul, The Independent (London, England)
As prospects of a recession loom larger, more home buyers are growing worried about being able to meet their mortgage payments if they are thrown out of work. Payment protection insurance (PPI) can stave off repossession, but it could be a waste of money for the self-employed.
The Government is backing a campaign led by insurers and mortgage lenders to encourage borrowers to take out PPI. They want to see 55 per cent of homebuyers covered by 2004, reducing the number of people whose homes are repossessed because accident, illness or unemployment prevents them from keeping up their payments.
The Association of British Insurers has found that about a fifth of the population falsely think they would be helped through state benefits to repay their mortgage if they hit hard times. But state assistance is means-tested and those eligible may wait nine months before receiving benefits.
Payment protection insurance offers good value, according to the majority of those interviewed by NOP Financial for the ABI. Policyholders who had made claims said the procedures had run smoothly.
Yet the report also concluded: "There is a worrying lack of awareness about the level of Government help with debt repayment." Many people have unrealistic expectations of the assistance available to them. The report hinted at wider problems, suggesting that more information should be made available to consumers about PPI policies.
Mary Francis, the director general of the ABI, said she was pleased with the findings of the research. But she added: "We must continue to improve communications with policyholders about payment protection insurance, during and after the sales process, so we can be sure those who are taking on big financial commitments such as a mortgage or other loan make a properly informed choice about whether to buy insurance."
This reservation is endorsed by the latest issue of Ombudsman News, the bulletin of the Financial Ombudsman Service. The insurance ombudsman believes consumers are not informed clearly enough about the limitations such as the failure of policies to pay out where the insured suffers from stress or other mental illness. Unemployment might cause stress, preventing the insured from signing on as unemployed, and debar them from PPI cover.
Equally worrying is the lack of proper information commonly given to people taking out PPI policies, which may add up to yet another instance of financial mis-selling. The ABI code and the new code of the General Insurance Standards Council require sales people to "ensure as far as possible that the policy proposed is suitable to the needs and resources of the prospective policyholder".
But the insurance ombudsman says that the complaints received by his office "indicate this has not happened". …