Homebuyers who take the life insurance deal offered to them by their mortgage lender could be paying 50% more for the same life cover than they need to and in some cases will be pushed towards taking even more expensive options.
Research carried out by life insurance and protection comparison website www.money-minder.com has found that life insurance and mortgage protection being sold by the country?s biggest mortgage lenders doesn?t always offer the best value and in some cases could be costing home buyers a packet.
Using one typical example the difference between the most expensive cover offered and the cover available via Money-minder.com was £25.74 per month or a staggering £9,266.40 over the term of the policy.
Researchers from Money-minder approached the biggest mortgage lenders for joint life insurance quotes to cover a mortgage. The cover requested was for mortgage protection cover (decreasing term assurance) of £200,000 for a 30 year term.
The typical male and female couple were non-smokers aged 35 and 30 respectively in low risk occupations. The cover did not include additional critical illness cover or waiver of premium cover and all premiums were guaranteed to remain the same throughout the term of the policy.
| Lender | Monthly premium quoted | Difference to money-minder.com quote per month | Total difference over policy term |
|---|---|---|---|
| Best 'No Fee' quote from www.money-minder.com | £12.99** | ||
| HSBC | £38.73* | £25.74 | £9,266.40+ |
| Halifax | £34.66* | £21.67 | £7,801.20+ |
| RBS | £21.60 | £8.61 | £3,099.60+ |
| Natwest | £21.60 | £8.61 | £3,099.60+ |
| Santander/Abbey | £16.35 | £3.36 | £1,209.60+ |
*The Halifax and HSBC advisers would only offer two single life policies rather than a joint life policy. This means that both applicants would have £200,000 of cover each whereas with joint life cover £200,000 would be paid on the first death of either of the applicants and then the cover would cease. This option does provide more cover than was asked for, and more than the other policies quoted, but it is subsequently a more expensive option. Equivalent cover via www.money-minder.com would cost £24.14 p.m. with a £30.00 one off administration fee. That?s still a saving of £14.59p per month over the quote from HSBC providing a saving of £5222.40 over the 30 year term of the policy.
**£12.99 was the lowest premium found on money-minder without the customer paying a one off administration fee. If the customer chose to pay a one off administration fee of £30.00 that premium would fall to an even lower £11.92 per month saving the customer even more money over the term of the policy.
Despite requests for quotes for joint life policies, two lender?s advisers insisted that they would only provide cover on the basis of two single life policies rather than the cheaper joint life option. Although this would provide additional and more flexible cover the cost is also substantially higher. This created a difference of £25.74 per month between the most expensive solution offered and the cheapest available on Money-Minder.com. It?s also worth noting that an equivalent two single life policy option via Money-Minder.com would also have been £14.59 per month cheaper than the solution offered by HSBC and £10.52 per month cheaper than the solution offered by Halifax.
Websites such as www.money-minder.com are often able to offer much better deals than banks and building societies because they sacrifice all or some of their commission in order to make the monthly premium as low as possible. That?s the commission which would otherwise be paid by insurers to the lenders and their mortgage advisers.
The insurers compared on www.money-minder.com are just the same as those offered to mortgage customers by bank and building societies. The cheapest quote found by money-minder in this comparison was for a policy provided by Legal and General, one of the leading insurers for life and protection products.
Although, the lowest premiums available are usually on the basis of the customer choosing the most appropriate product for themselves, in this instance Money-minder would be able to offer the customer full face to face advice with an Independent financial Adviser (IFA) giving exactly the same cover for a premium starting from as low as of £16.20 p.m. That?s still significantly less than the non-advised quotes offered over the phone by the banks and building societies looked at in this research.
Ray Black, of leading life insurance and protection comparison site www.money-minder.com, said: ?When you?re applying for a mortgage the lender?s adviser or broker will generally also try to sell you some life insurance to cover your mortgage. It?s sensible to protect your partner or family in this way but it?s rarely a good idea to blithely accept the first policy they offer without shopping around first. Our research has shown that a mortgage customer could be offered cover costing a lot more than they could find by comparing a range of insurers with a discount comparison site such as Money-minder.com.
When buying car or house insurance, people tend to shop around, unfortunatley most don't treat life insurance in the same way - but they should! A difference of £20.00 per month could add up to a saving of over £8,000 over 30 years and I?m sure customers would prefer to keep that money for themselves rather than give it to the banks.?
