Can single premium MPPI policies ever be in clients’ best interests?

Aidan Plumridge is marketing and business development manager at Cassidy Davis

The mortgage payment protection insurance market has undergone a shake-up over the past 12 months with product providers introducing innovative products to what was once considered a ‘one size fits all’ sector.

Today there is increased flexibility, choice and affordability, making MPPI a more attractive proposition to a wider range of consumers. The key word here is choice as no one product is ever suitable for the whole market. This is why there should be room in an intermediary’s armoury for single premium MPPI products.

It’s true that the pricing of some single premium policies is too high. But a competitively priced product with a fair refund policy which provides certainty of cover over a fixed period is a viable alternative to a monthly renewable plan.

A single premium policy guarantees a level of cover for a fixed period of time at a fixed price whereas monthly renewable contract terms can be amended or products withdrawn at short notice should a provider’s strategy or the economic climate change.

Another advantage of a single premium policy is that the policyholder has the benefit of spreading the cost of cover over a longer period of time. This provides certainty over the crucial early years of the home buying process.

But it is vital that clients are made aware of the extra cost involved as the premium is often added to the total interest that they have to pay. As the typical life of a mortgage is between three and five years, a single premium to cover this period may suit a borrower approaching the limit of their expenditure.

Only by providing brokers and lenders with access to innovative products and supplying the right marketing tools to help them sell the right products to the right people at the right price will there be increased take-up of MPPI.

Mike Gamble is UK sales and marketing manager at Berkeley Alexander Insurance Services

The end is in sight for single premium mortgage payment protection policies as the demands of regulation start to bite. Single premium policies rarely offer the most appropriate cover for borrowers and the Financial Services Authority’s Treating Customers Fairly initiative means the product’s days may be numbered.

The first volley in the battle has already been fired with lenders coming under pressure from the FSA to offer a refund when policies are cancelled. A consumer can cancel an MPPI deal but whether they get a refund depends on how the policy has been calculated and applied. Some lenders calculate the cost of the MPPI for the term of the loan and add it to the loan amount. While some lenders refund cancelled MPPI on a pro rata basis, some offer no refund, often leaving brokers to take the flak. With a monthly MPPI policy a customer can cancel payments at any time.

High street lenders have consistently targeted protection policies as a means of recouping some of the cash they lost by offering low APRs and cut-price products. Some charge anything up to five times more for the product than specialist insurers and brokers. This is bad for consumers and the industry as a whole.

There is no doubt the FSA will be asking how advisers not sourcing the market to find the best deals for their clients can justify their actions in light of regulation. Anyone selling general insurance products must ensure the product sold meet customers’ requirements.

Moreover, brokers must abide by the Treating Customers Fairly rules and this includes an obligation to sell clients the best products that suits their needs. For a small minority a single premium product may be suitable but for the vast majority the best product means regular premium and age-banded MPPI policies.