PPI scandal has negatively impacted sales

This article is part of
Selling Protection - June 2014

The three most common types of protection are income protection, critical illness and life insurance, but more products do fall under the protection umbrella that are not as well known.

Payment protection insurance, a type of short-term income protection, is probably the most well-known protection product outside of the three mentioned, but undoubtedly this is for all the wrong reasons.

Bob Riach, principal at Riach Independent Financial Advisers, said that PPI used to be known as mortgage unemployment insurance and people took it out for that very reason.

Article continues after advert

According to Mr Riach, PPI became very popular from the late 1980s due to the government changing the rules surrounding unemployment benefits.

He says: “Previously, the government would pay the interest portion of your mortgage if you were unemployed but in the late 1980s the government changed the rules and said they won’t pay anything towards the mortgage for the first nine months so people got PPI to cover them for that period.

“The majority of policies used to pay out after 30 days if you were in receipt of unemployment benefit.”

Mr Riach adds that PPI can cover people for sickness or unemployment or both and it normally pays out for 12 months.

Those who are self employed can only claim on PPI for sickness not unemployment.

However, the scandals have impacted not only people’s appetite for PPI but also advisers’ willingness to sell it.

He says: “I have been doing mortgages for over 30 years and PPI featured as part of that but now around one in 100 clients take it. I think that’s due to the scandals around it.

“Another reason why people don’t take it is because of the initial expense which is a percentage of what you are insuring yourself for and people view it as an additional cost.

“There is actually nothing wrong with PPI at all. There is still a need for it but people are coming for mortgages now and don’t want the additional expense.

“To protect myself from complaints later down the line, I include in my documentation the fact that they decided against taking out PPI.”

According to Steve Devine, chair of the Protect Association, PPI has cast a shadow over short-term income products (Stip) “to the point that currently no one knows how much, or how little, Stip is being sold or claimed on”.

He adds the annihilation of the PPI market, spanning several years, has created a gap that traditional income protection products have not managed to close.

Funeral and health plans

Golden Charter is one firm that offers a range of later life planning products that are tailored for the mature market.

Michael Corish, managing director for business at Golden Charter, says: “People over the age of 50 are increasingly aware in making financial arrangements for the future.”

Last year, Golden Charter sold in excess of 50,000 funeral plans and more than 400,000 have been taken out to date. Their plans work by guaranteeing that the plan holder’s family will have nothing more to pay at the time of need for the funeral director’s services.