Mortgage cover gave me months of misery

Published 18th Jan 2010

Millions of mortgage borrowers have insurance designed to cover their monthly repayment if they are made redundant - but many policyholders like reader Carol Wilcock are seeing their claims rejected.

The cover, which only took off in the past decade, has never been tested as rigorously as now, with unemployment at record highs and borrowers remaining out of work for longer periods.

Between mid-2008 and mid-2009, insurance claims for unemployment doubled. And although insurers say the number of new claims has dropped in the past six months, payouts are being made for an average seven months, up from four in 2008, as claimants struggle to get back into work.
Reader Carol Wilcock

Behind the scenes, insurers are either pulling out of the market or trying to pass on higher costs to policyholders. As Financial Mail first reported last April, as the recession gained momentum many insurers, including the Post Office, moved to protect their profits by pushing up premiums or cutting back on cover.

The Financial Services Authority acted in October, forcing insurers to refund these increased premiums or reinstate cover. Those refunds are still being processed.

But insurers promised to keep premiums at existing levels only until this year. With that deadline passed, many are now working on new letters to tell policyholders that premiums will rise in 2010.

But an increase in cost at the worst possible time is not the only problem with these complex insurance plans. Making a successful claim can be difficult - as legal secretary Carol Wilcock found out. Like many, the 49-year-old divorcee from Warrington, Cheshire, has had a difficult recession.

She was made redundant from a Manchester law firm in October 2008 and was out of work until last March when she found a job with another legal practice. But she lost this job when the firm folded last October.

Carol pays £500 a month for the mortgage on her semi-detached house, but since 2007 she has had a policy with Paymentshield, the biggest independent provider of this type of insurance and she contacted them at once. 'I knew how it worked and I was grateful I had it,' she says.

But Carol was in for a shock. Although she was able to provide her P45 and other evidence showing that she was out of work, her previous employer could not be contacted to sign a crucial document proving she had been made redundant.

Insurers need this to confirm that a policyholder has not been dismissed for misconduct. But in Carol's case, even with the help of the Law Society, her old boss could not be traced.

Carol says: 'By the end of November Paymentshield had everything I could possibly get them and I'd exhausted every avenue to find my former employer. But Paymentshield seemed never to have come across this circumstance before. I was calling endlessly and being told there was nothing that could be done.'

To keep her policy going, Carol was still paying the £23.80 premium each month. She slipped one month into arrears on her mortgage for which her lender, Future Mortgages, charged her a £50 'arrears administration fee'. It was only after Financial Mail contacted Paymentshield earlier this month that it agreed to pay, almost ten weeks after she lost the job. Carol started work again a week ago.

Paymentshield director Richard Dixon apologised for the way Carol's claim had been handled, but described the circumstances as 'exceptional'.

He says most claims should be processed within three weeks and that when claims are made, payouts average more than six years' worth of premiums. But Dixon says 14 per cent of claims are rejected for a variety of reasons.

Most unemployment cover is sold alongside home loans and is known as mortgage payment protection insurance (MPPI).

It is supposed to pay out if a borrower's income fails due to unemployment or ill-health. It shouldn't be confused with MPPI, which has comparatively low monthly premiums, with expensive and scandal-ridden payment protection insurance.

With MPPI, borrowers who are made redundant are able to claim for monthly payments usually equal to their mortgage costs.

If you are sacked for misconduct or volunteer for redundancy, you cannot claim.

To make a successful claim, policyholders must submit a P45, a letter from their previous employer to confirm they were made redundant and evidence that they are claiming benefits.

Payments start usually after one or two months after the loss of the job. Most mortgage lenders offer MPPI, but the cheapest cover comes from internet providers such as getmy.com and justclick4cover.com.

Cost varies according to age because the illness element of cover places a higher risk on older borrowers. Someone under 45 could buy cover for £2 to £4 a month for each £100 of monthly mortgage payment insured.

Source: ' Daily Mail '

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