Simon Hood, Chief Executive explains: ” We looked at number of areas:- value for money, method of payment, flexibility, early cancellation, result of a claim, and the average life of a mortgage. In all cases we found that monthly policies are far better for the homeowner. The only instance where single premium policies were better was in the commission that the adviser received!”
Taking each area in more detail:-
Value for money - monthly premiums over a 25 year mortgage are on average substantially cheaper compared with a single premium product.
Method of payment - very often this is added to the mortgage thereby incurring interest on top of the higher premium.
Flexibility - there is none, to take into account increasing or decreasing interest rates as well as updating the policy as a result of changes in basic monthly costs of living.
Early cancellation - the premium is non-refundable in the event of a person wanting to revise their protection requirements.
Result of a claim - in the event of a claim up to the maximum pay out level early in the policy the claimant who may have paid for a 5 year policy and continues to renew up to the life of the mortgage has paid for cover that in some circumstances they do not need or cannot claim on again.
Average life of a mortgage - the industry average is about 6-7 years therefore taking out cover of 20 –25 years, on a continually renewing basis, makes no sense at all.
Hood, adds
“ It is well known that the commission paid on these policies is very high, accounting for some 50% of the cost. Until the above issues are resolved by providers we believe that single premium MPPI cover should be withdrawn from the market. We know the FSA are looking into the subject and so they should as under no circumstances can they be sold under the auspices of best advice.”
Select & Protect offers a range of MPPI products the premium of which are levied on true monthly basis ie: there is no charge for paying on a monthly basis.
