There appears to be confusion among consumers, some financial advisers and in particular claims chasing companies, when it comes to payment protection insurance (PPI) and income protection (IP).
This leads to claims chasers making wrongful PPI complaints to IP providers and the Ombudsman and to clients cancelling a perfectly legitimate, valuable IP contract.
PPI provided financial cover for the payments related to a loan or a mortgage. Covering these loan payments was a prudent measure. Indeed the Mortgage Code Compliance Board (MCCB) required advisers to record why cover had not been arranged for new borrowers and, when the FSA took over, this requirement continued.
PPI products however, did not cover any other financial commitments and while mortgage payments are important, so is the cost of day to day living. But despite the damage caused by PPI mis-selling, the need for protecting loans, mortgages and lifestyle remains.
The FSA's Mortgage Market Review (MMR) rightly requires mortgage applicants to have professional advice and for lenders to be responsible for affordability assessments.
Affordability depends on income so a professional adviser also needs to ensure the applicant has sufficient provision to meet financial obligations in times of illness when income may cease.
Many advisers seek to achieve this by recommending a critical illness (CI) policy. While a lump sum can be useful to help an individual adjust after suffering such a serious illness, it does not provide a regular income to pay for the everyday things.
Therefore IP needs to be a prominent choice for mortgage advisers and applicants. Mortgage advisers should consider it an essential product for applicants who rely on monthly income to meet mortgage payments.
The negativity surrounding PPI and the greed of claims chasing companies may have left many unprotected. In the short term they have gained a small lump sum, in the long term their home and lifestyle may be at risk.
Advisers and providers have a responsibility to ensure that these people get the protection they need sooner rather than later.
John Bridge is director of sales and marketing at Cirencester Friendly Society
