Summary
Some of the ways in which the business is dealing with mis-sold life insurance policies. The difficulties associated with payment protection policies are emphasized.
The mis-selling of cheapest life insurance cover by a substantial number of mortgage lenders has to be dealt with by the Government. Action has been taken by the Department of Trade and Industry, who have just about completed their investigationinto the lock in of home insurance with a mortgage. A press releaseforbidding the practice is Mr Timesgoes on saying that even though lenders may not insist that clients have life insurance, they can be persuaded that they do not have a choice, through the provider being ambiguous with the truth.
60 per cent of life insurance is sold by mortgagelenders, however it can be bought through direct providers or independent advisers.
Then again a DTI spokesman has said that their enquiry continues into a massive range of insurance tie-ins. A provider who met Alistair Darling has said that life insurance has been looked at in passing , while more emphasis has been placed on home insurance.
The problem with customers being pressured into buying noncompetitive life cover and home insurance plans is just as significant for both products.
The concerns are especially serious with payment protection insurance. Around half of all consumers who have been persuaded to take out a payment protection insurance may have been provided with the wrong type of insurance. Plus the the greater part of those who bought one of these suspect insurances expect far more than they would in actual fact collect if they could not pay their bills.
A broad investigation has brought to light that about 26% of people are under the illusion that they will earn a monthly income from their Payment Protection Insurance policy, not understanding that the insurance would only cover their debts.
Another 20% said they thought the policy would cover them if they if they were unable to meet their repayment commitments for any reason, and 7 percent said they believed that their medical expenses would be paid if they became sick .
Many people thought the policy would go on indefinitely to cover their debt repayments, others thought their policy would cover motor car breakdowns and household bills.
Annual sales of PPI policies are said to create payments of about 5.3 billion pounds for the finance industry. However a staggering 4 billion pounds of this is said to be pure profit. Studies suggest that a few banks charge up to 500 per cent more than others for the same product.
The OFT is investigating the sale of Payment Protection Insurance preceding objections from Citizens Advice and the National Consumer Council. It recently highlighted concerns that banks are attracting customers by advertising seemingly cheap loans and then hammering them with large extra costs by selling pricey Payment Protection Insuranceas part of the transaction.
As a consequence, a loan which appears to give good value turns out to be far more expensive.