Homebuyers will be familiar with these products – such as life insurance and critical illness cover – which are often sold via brokers and advisers during the mortgage application process.
They are aimed at providing a safety net to pay bills and cover mortgage repayments should the policyholder die or become unable to meet financial obligations.
But the Financial Conduct Authority (FCA) has raised concerns the design of commission arrangements may not allow firms to deliver good outcomes to policyholders.
The regulator is also concerned that some products may be providing poor value, for example if the total premiums paid over a lifetime far exceed the maximum conceivable payout.
During its probe, which is due to take place in the next year, the FCA will be honing in on term assurance, critical illness cover, income protection insurance and whole of life insurance including policies for over 50s that offer guaranteed acceptance.
These are usually sold through intermediaries such as independent financial advisers or mortgage brokers. The FCA said around £4billion was paid out in claims in 2022.
Sheldon Mills, executive director of consumers and competition at the FCA, said: “Pure protection can offer peace of mind and financial security, often when people are at their most vulnerable. Consumers should be able to buy products which meet their needs and provide fair value.
“We have seen indications that this may not be the case across the pure protection market and we will act if we find that the market is not working well.”
The FCA’s study will be launched later in 2024/25.
Types of protection insurance
Here is a bit more information about the products the FCA will be reviewing.
Income protection
This can be used to pay the bills if the policyholder becomes unable to work. It will cover a percentage of their income will usually cover outgoings.
Whole-of-life Insurance including policies for over 50s offering guaranteed acceptance
Life insurance covers the finances after the policyholder’s death, providing their family or beneficiaries with money to pay bills and maintain their lifestyle.
Guaranteed acceptance is a type of whole-of-life insurance which doesn’t require medical or health information for an individual to qualify for cover.
Term assurance
This is a policy which pays a lump sum to beneficiaries if the policyholder dies within a specified period.
Critical illness cover
Pays out a lump sum if the policyholder is diagnosed with a serious illness and cannot pay the bills.
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