Mortgage protection: A lifeline or noose?

If you have purchased or are considering purchasing mortgage protection from a high street lender then think again, for unless you are really careful you could be placing a noose around your neck. Much has been made of how the high street banks and lenders have, in the past, ripped off their unsuspecting customers by selling over priced, often unsuitable cover. However, if you shop around for the cover and take the option of going with a standalone protection specialist then you would probably buy the lifeline a mortgage protection policy should be.

Ideally mortgage protection is taken out to provide those who have to keep up with their mortgage repayments with a monthly income if they should become unable to work after having an accident, an illness or being made redundant. Policies continue to pay out for up to 12 months and in some cases 24 months, which can indeed be a lifeline in protecting the roof over your head and stopping repossession due to not being able to afford your mortgage repayments.

However, as with all insurance, there are exclusions in a mortgage protection policy and this means the product isn’t suitable for everyone. There is a thin line when it comes to determining if mortgage protection is a lifeline or noose and it all basically boils down to the fact of whether you understand a policy or not. The majority of people don’t understand a policy - how could they be expected to when they are filled with what only can be described as technical jargon. Luckily there are lenders in the sector that realise this and campaign for the cover to be explained clearer while doing their bit and giving you the information you need to ensure you don’t hang yourself with an unsuitable policy.

Many high street lenders at the other end of the scale would gladly help you place the noose there and pull it tighter by selling you a policy that is filled with exclusions which of course they haven’t explained to you at the time of selling the policy. They will also charge you an extortionate premium for a policy which could essentially be worthless to you. This has been the number one reason for the fines handed out by the Financial Services Authority (FSA) during their investigation spanning two years and which is still underway while the sector has also been referred to the Competition Commission (CC) by the office of Fair Trading.

In early 2007, several well known financial companies were fined by the Financial Services Authority due to not ensuring mortgage protection was right for consumers. However, with the FSA and the CC looking at the payment protection sector as a whole, positive changes will be made in the industry and cover will be made more transparent for the consumer. Mortgage protection is supposed to be a lifeline, this is what it was designed for and is what it should do and by the time the CC and the FSA have completed their respective review and investigation hopefully mis-selling will be a thing of the past and mortgage protection will have a better future, as will the consumer.