Mortgage protection insurance should only be offered to customers for which that type of insurance is suitable. To support this, justification must be provided to the customer if a recommendation to purchase this type of insurance if given by the intermediary/salesperson.
In most sales environments only one mortgage protection policy will be provided, unlike motor insurance sales where the seller will select a motor policy from several available.
Suitability is therefore seldom based on a comparison between mortgage protection insurance policies, but rather a comparison of the mortgage protection policy being sold, against the customer’s circumstances.
Areas that may be considered are,
- Is the customer eligible for the insurance,
- Does the customer understand the cover they are purchasing,
- Does the cover meet the customers needs,
- Are there cover limitations that could affect the suitability and is the customer aware of these?
The FSA rules refers to the customer’s demands and needs, to emphasise that it is the customer’s requirements that should drive the sales product selection process.
The customer’s demands and needs can easily be collected during the sales process so long as this information gathering is a planned process. The sale can then be provided either on a non-advised basis or an advised basis.
Eligibility
Checking if the customer is eligible for the mortgage protection insurance cover is the first stage in matching the customer’s demands and needs.
This can be achieved by using a tick box approach with such statements as,
- I am between the ages of 18 and 65,
- I am working for 16 hours a week or more,
- I am not currently off work with a condition that has lasted more than one month,
- I am not already aware that I will loose my job,
- I am the first named in the finance agreement,
- I reside in the UK.
These statements must be tailored to the policy being offered. For example if the policy excludes the self-employed than a statement should be introduced to check that the customer is not self-employed.
Cover
Once it is known that the customer is eligible for the mortgage protection policy, a clear statement describing the eventualities that are covered should be provided. The following are examples of this,
- I would like my mortgage repayments to be made of me (for a maximum period of 12 months starting after 30 days if I become ill or loose my job.
- I would like the outstanding balance on my loan agreement to be paid if I die before the end of the loan period.
- I have no other mortgage protection policy providing this cover.
Or
- I wish to supplement my existing insurance arrangements (which will not be affected by this policy).
The customer should be fully aware of the cover they are getting and if they already have similar insurance, be aware that that cover would not be affected if they take out this new policy.
For example the customer may already have a separate critical illness cover, but wants also to have specific protection for the mortgage repayments, and know that the policies do not affect each other.
The statement should be constructed so that the customer is prompted to consider the advantages, disadvantages and relevant points before making their decision to purchase. If there are any doubts the sales person should be there to answer any questions the customer may have.