Andrew Clothier reminds that many with mortgage payment protection products are over insured or not insured at all.
Those with variable or tracker rate mortgages have seen a dramatic reduction in their monthly mortgage payments since the UK bank rate was slashed to 0.50%.
But that also means that many are paying for an insurance protection which may not fully pay out if they are unable to work through accident, illness or redundancy.
It is essential to check the terms of the policy because insurers will often only pay a benefit equivalent to a borrowers current mortgage payment, plus a little extra towards some other household bills.
Borrowers shouldn't assume that if their monthly mortgage payment was £600 when the policy started, that the insurer will settle a claim at this level now, if their current mortgage payment is a lot lower.
If they are over-insured in this way, not only are they likely to qualify to claim less than they expected, they are also paying a higher monthly premium than they need.
We have contacted all our clients who have this type of protection because we want to avoid seeing claims cut back - it is also essential in these hard times to identify any potential savings to be made on insurance premiums."
The selling of these insurance protections is notoriously controversial, with many leading banks currently dealing with thousands of miss-selling claims.
This has culminated in the extraordinary announcement by the Lloyds TSB group (Lloyds, C&G, Halifax, Birmingham Midshires, etc) in July, that they would no longer offer payment protection on new loans - borrowers now have to look elsewhere for the protection.
The sales process for these products, often over the telephone or internet, is likely to involve them being offered one insurance product only, and it is very much hit and miss as to whether the terms and conditions of that contract will be clear and fit the individuals' circumstances.
A good example of this is a woman I met last week, who had a policy with a leading Insurer which she took out in the nineties through the Financial Services division of a large national retailer. This was to protect a re-mortgage she was taking out when she divorced.
Although she's still paying the monthly premium of £22.40, no-one has thought to ask her if she still has that mortgage - which she hasn't, so there is no way she can claim on the policy.
In addition, as she works for a local council, she gets paid for up to 1 year if she's off work through sickness and accident, but her policy only pays out for up to 1 year.
So effectively, the policy would stop paying a benefit just when she needed it to start - which is completely unsuitable. Despite this, she has not been offered a regular policy review, and if we hadn't met, how long would she have been paying £22.40 for an insurance protection which she couldn't claim on? "
I have negotiated with her insurer, a refund of her premiums from the date that she paid off her mortgage, and I'm setting up an alternative insurance which will start to pay a benefit linked to her loss of income, at exactly the moment when her employer stops paying her, should she become unable to work due to sickness or accident.
Borrowers, to avoid risking their insurer cutting back or worse still, refusing their claim, should get independent advice from someone who has access to the whole insurance market so that they can tailor protection to specific employment and family needs - someone who will also regularly review their changing financial situation.
Andrew Clothier is principal of IFA Regents Court Financial in Wolverhampton
