Loan protection insurance came under fire in 2005, when the Financial Services Authority started looking into the industry after the Citizens Advice made a very strong complaint to the Office of Fair Trading. It was found that the way the product was sold needed to be changed in many ways. Some good changes have been made, but a recent review by the Financial Services Authority found that firms are still not making the product easy for customers to understand and that it is still being sold in the wrong way.
Loan protection insurance can give you a tax-free income every month if you can't work because of an accident, a long-term illness, or a reason like being laid off. After a set amount of time, which can be anywhere from one to three months after the event, the insurance would give you a tax-free income for up to 12 months, and with some policies, for up to 24 months.
Keep in mind that there may be exceptions that mean the product isn't right for everyone, so it's important that these are made clear when you buy it. Some common ones are being retired, self-employed, only working part time, or having a long-term illness at the time you buy the policy.
One of the many problems with the mis-selling of loan protection insurance, for which the Financial Services Authority fined several companies in early 2007, was that the product wasn't made clear at the time of sale. Poor sales techniques led to the product being mis-sold, and people ended up with policies they couldn't use. Most policies are bought at the same time as a loan from a high street lender, but this can make the cost of the coverage hundreds of dollars higher than it needs to be. Loan protection insurance can be bought on its own, which is the best way to save a lot of money on premiums for something that could be very important and give you a lot of peace of mind.
The independent specialist who sells loan protection insurance will always make sure the customer has access to all the important information and key facts they need to make an informed decision about whether or not the product is right for them. In March 2008, the introduction of comparison charts will be one of the biggest changes for the better. Comparison charts will make it easier for consumers to buy the right product because they will have to answer a series of questions that will lead them to the right payment protection product. Also, the charts will show how much the insurance will cost in total, point out any exceptions, and help the customer get the best deal.
It is important to remember that the problems with payment protection are not caused by the product itself, but by those who sell it in a bad way, like high street lenders. A specialist who works on their own will know everything there is to know about their products and will be able to give you the advice you need to choose the right loan protection insurance.
