Loan Protection Insurance Still Being Sold Incorrectly
Below is a MRR and PLR article in category Finance -> subcategory Wealth Building.
Loan Protection Insurance Still Sold Incorrectly
Overview
In 2005, loan protection insurance faced intense scrutiny when the Financial Services Authority (FSA) launched an investigation following a major complaint from Citizens Advice to the Office of Fair Trading. The investigation revealed the need for significant changes in how these products were sold. Despite some improvements, a recent FSA review shows that many firms continue to sell these policies incorrectly, leaving consumers confused.
What is Loan Protection Insurance?
Loan protection insurance provides a tax-free income if you are unable to work due to an accident, long-term illness, or unemployment, such as redundancy. After a waiting period?"usually one to three months?"the insurance offers income support for up to 12 months or, in some cases, 24 months.
However, not everyone is eligible. Exclusions apply, such as being of retirement age, self-employment, part-time employment, or having a pre-existing condition when taking out the policy. These conditions must be clearly communicated to consumers at the time of purchase.
Issues with Mis-Selling
Poor sales practices have resulted in widespread mis-selling, with firms failing to make the product clear to consumers. This led to several companies being fined by the FSA in early 2007. The most common method of selling these policies is alongside the loan at the time of agreement, usually through high-street lenders. This bundling often significantly inflates the cost.
To avoid these issues, consumers are encouraged to buy loan protection insurance independently. Doing so can result in substantial savings on premiums while securing essential coverage and peace of mind.
Buying Independently
Standalone providers of loan protection insurance ensure consumers have access to vital information and key facts, enabling them to make informed decisions. One promising development is the introduction of comparison charts, set for March 2008. These charts will guide consumers by asking key questions, helping them select the appropriate payment protection product. The charts will also display the total cost, highlight exclusions, and help find the best deal.
Conclusion
The root of the issue lies not with the product itself but with poor sales techniques, particularly by high-street lenders. Standalone specialists, however, understand their products thoroughly and provide the essential advice needed to determine the suitability of loan protection insurance for each individual consumer.
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