COMMENT

The Shocking Cost Of Mortgage Cover!

By Cliff D'Arcy
March 22, 2006

Mortgage payment protection insurance (MPPI) is one of the UK's biggest financial rip-offs.

"Huh? What's MPPI?" I hear you ask. It's an optional insurance policy which meets your mortgage payments (and often other mortgage-related expenses) if you are unable to work due to accident, sickness or unemployment. Hence, it's often referred to as ASU cover.

According to the latest figures from trade association the Council of Mortgage Lenders (CML), at the end of 2004, around 2.65 million mortgage borrowers had an MPPI policy. Given that there were 11.5m mortgages outstanding at this time, we can see that almost a quarter of all mortgage borrowers (23%) have MPPI cover.

Alas, the bad news is that almost three-quarters of MPPI policyholders (73%) bought this cover directly from their mortgage lender. Only one in five borrowers (21%) bought MPPI from a financial adviser, and the remaining 6% bought it direct (most probably online).

The problem with buying MPPI directly from a mortgage lender is that you're a captive audience, so the lender charges as much as it possibly can for this cover. What's more, it knows that you have no idea of the true value of this protection, and that it's easy and convenient for you to buy it on the spot, rather than shopping around.

As a result, all major mortgage lenders charge rip-off premium rates for this cover, as the following tables confirm:

Annual cost of ASU cover for a £500 monthly mortgage repayment

Lender	Annual premium (£)
Lloyds TSB/Cheltenham & Gloucester	£720.00
Halifax/Bank of Scotland	£363.60
Abbey	£362.40
Britannia BS	£360.00
Barclays/Woolwich	£357.00
Alliance & Leicester	£357.00
HSBC	£356.40
Nationwide BS	£353.40
Northern Rock	£346.80
Bristol & West	£330.00
Portman BS	£330.00
Royal Bank of Scotland	£327.00
NatWest	£307.20
Bradford & Bingley	£294.00
Yorkshire BS	£235.80
Market Harborough BS	£150.00

As you can see, the not-for-profit MPPI policy sold by the small-but-beautiful Market Harborough BS is less than half of the price of other leading MPPI policies!

As someone who worked in the PPI industry for eleven years, I know exactly how over-priced this insurance is. Indeed, I reckon that lenders and insurers are making excess profits of at least £400 million a year from selling rip-off MPPI. Over the 25-year life of a typical mortgage, this adds up to a whopping £10 billion, making MPPI one of the UK's biggest financial scandals!

So, what are the alternatives to buying MPPI from your mortgage lender? Well, keeping six months' mortgage repayments in a high-interest savings account will cover all but the most severe claims. Indeed, by self-insuring, you don't need to buy MPPI at all, so you can save the monthly premiums into your emergency fund, further boosting your cash cushion!

On the other hand, if you really can't do without the peace of mind that this protection provides, then shop around, because there are several independent providers of MPPI which offer cheaper cover and a wider range of product options, such as these firms:

Provider	Annual premium
Select & Protect	* 202.55
Helpupay Apply via the Fool	204.00
Paymentcare Apply via the Fool	228.00
British Insurance	237.00
St Andrew's Group	294.00

* for borrowers aged between 36 and 40.

Alternatively, if you believe that you can get by without unemployment cover, or if you're self-employed (as I am), then income protection insurance (long-term sickness cover) is usually a much better bet than accident and sickness MPPI.

Finally, if you want to learn more about protecting yourself and your assets, read Eight Ways To Protect Your Wealth.

More: Find better insurance and high-interest savings accounts today!

Cliff owns shares in Lloyds TSB and HBOS, parent company of the Halifax, Bank of Scotland and St Andrew's Group.