Can Mortgage Payment Protection Insurers Change My Premiums?

Nearly all mortgage payment protection insurance (MPPI) policies come with reviewable premiums. Policies with reviewable premiums specify that the insurer is able to change the premiums charged over the life of the policy based on specific events or changes in risk.

As a result, MPPI insurers are able to alter premium rates over the term of the policy.

Recent premium rises

Most MPPI plans are monthly or annually reviewable contacts and therefore insurers are able to alter the premiums charged at these intervals, if desired.

A number of providers have had to increase the premiums they charge over the last year as a result of an increase in claims made due to the current economic climate. As unemployment rose so did the number of claims made on the redundancy section of MPPI policies. Some insurers were even forced to raise premiums in order to pay their current unemployment claims.

Some consumers made complaints to the Financial Services Authority (FSA) or the Financial Ombudsman Service (FSO), the independent financial body who settles financial complaints, arguing that the rise in their premiums were unfair.

In many cases the FSA and FSO sided in favour of the consumer over the insurer and required premiums to be returned to previous levels or for a refund to be granted. Although, it should be noted that insurers do still have the right to raise premiums given that certain conditions are met.

When can premiums be increased

A new agreement between the FSA and MPPI providers has been reached regarding the conditions under which premiums may be altered. It is important to note that the specific conditions may vary from insurer to insurer so it is vital to check the policy wording.

It is mandatory that the policy document set out the insurers rights for premium alteration in a very clear manner. The circumstances under which insurers’ may change premiums typically include:

• To comply with a change in applicable law or regulation;
• If there is a change in an applicable tax;
• If there is a change in the cost of administering policies of this type;
• Change in the assessment of any of the following: expectation about the number and/or cost of future claims for policies of this type; expectation about the length of time that policies of this type will stay in force; expectation about the level of future long-term interest rates.

Thus, it can be seen from these conditions that insurers do have a fairly wide scope to raise the premiums they charge. Although most insurers will not raise premiums within the first 12 months the short-term nature of these contracts does provide multiple opportunities for rate changes.

Possible solution

Payment protection policies are often taken out with mortgage protection life insurance to provide home loan protection against the risk of accident, sickness, unemployment or death. Unlike life insurance policies, which are long-term plans, MPPI policies usually provide cover for a period of up to 12 months.

There is however a fairly new type of mortgage insurance plan that provides long-term payment protection with guaranteed premiums. The plan covers accident, sickness and unemployment for the entire length of your mortgage and guarantees to keep your rates the same over the life of the policy.

To our knowledge this is the only policy in the market that provides guaranteed premiums for mortgage unemployment insurance. Please contact us for more information.