The first annual review by financial research and statistics company Defaqto suggested IP insurance could be in breach of the FSA’s TCF initiative and said the complexity and inconsistency in policy terms have made consumers turn their backs on the product.
IP can be packaged alongside mortgage payment protection insurance (MPPI) which will pay out if the borrower cannot keep up with their loan instalments because of sickness, injury or, possibly, unemployment in the short-term.
Mark Roberts, head of faculty financial regulation at ifs, said: “When an adviser recommends that a client purchase MPPI they are acting in the interests of the customer and failure to recommend appropriate cover could be perceived as negligence.
“However, protection is a very different product to a standard home loan and is often seen as an insignificant add-on to the mortgage. This problem is then compounded by the fact that the product itself is often too complex for most consumers to get to grips with.”
Commenting in insurance magazine Cover, Nick Telfer, head of life and protection at Defaqto, said: “I believe IP should be the most important item on anyone’s protection shopping list but, as highlighted in the report, the industry will need to change significantly before consumers and advisers warm to these products – and I do not see any evidence of this at the moment.”
“It is not surprising consumers fail to understand the extent of cover they will receive post-purchase and it is the adviser who is responsible for ensuring their client understands exactly what their policy includes at point-of-sale,” he added.
