Mortgage protection / PPI / Income protection / Payment protection ~ Recent confusion.

July 11, 2012

With the recent scandals of mis-selling of a variety of protection type policies by banks and others throughout the UK and Ireland, I feel it is time to provide a quick glossary or FAQ about the type of products that the media is largely talking about and the differences between them.

1. Mortgage protection – Good policy ūüôā

This is quite simply a life assurance product that you must start when you take out a mortgage on your family home.¬† It’s sole purpose is to clear the outstanding mortgage balance¬†in the event of the death of one of the policy holders during the mortgage term.¬† As your mortgage balance decreases over the years, so too will the amount payable by a mortgage protection policy.¬† This policy type should not be confused with a ‘Mortgage repayment protection¬†/ protector’ policy.¬† Mortgage protection DOES NOT cover your mortgage repayments if you are sick or lose your job.¬† It just provides a lump sum on death.¬† Some people have added in some specified illness cover to their mortgage protection policies, but this is not the norm.

2. Income protection – Good policy ūüôā

Possibly the most frustrating confusion for me, as I know the true value of a proper income protection plan.¬† An income protection plan or PHI / Permanent Health Insurance as it used to be known, is very different to a payment protection policy.¬† A true income protection policy is not linked to any particular loan or mortgage… it quite simply provides you with a salary during a period of illness.¬† It is an insurance policy that pays out a monthly benefit if someone is unable to do their job due to an illness, accident or injury.¬† It¬†DOES NOT¬†cover redundancy and it has never claimed that it will.¬† An income protection policy is a very useful insurance policy to have as it will ensure you will continue to have an income stream if you cannot work due to illness.

To confuse an income protection policy with the heavily mis-sold payment protection policies is actually causing quite an amount of damage, as people associate the recent scandals about mis-selling payment protection plans with income protection plans and subsequently decide not to take out what is a very useful policy.  This is because the media have frequently referred to the problem policies as being income protection plans.  They are not.

3. PPI or Payment Protection Insurance – The bad one ūüôĀ

THESE ARE THE PROBLEM POLICIES.¬† They were sold on the basis that if you ever got into a situation where you wouldn’t be able to make a monthly repayment to a personal loan or a mortgage, the policy would pay it for you.¬† In some cases they did, but in many cases they didn’t, due to a vast amount of get-out clauses and insurance small print.¬† Apparently, many people were sold the policies on the basis that their loan application might not be looked upon favourably if they didn’t take out a policy to cover the loan or they were sold one when their own circumstances, such as employment type, meant they would never have been able to make a claim.

Any insurance policy should always be justified and tailored to meet with the actual needs of the client.  It should exist to help the person if something happens that would affect them or their family financially.

If you are in any way confused about the type of cover that you have or what you feel you should have, please contact me and I will do my level best to explain each policy type to you and ensure that you have the correct type and level of cover appropriate to your own needs.  1890 254 000.