This is probably the most important UK money-saving opportunity since The Citizens Advice Bureau brought the miss-selling of Payment Protection Insurance (PPI) the attention of the British Public. It is even time for some good news for people who were NOT miss-sold!

The story so far

The leading consumer bodies and advocates, such as Which? and Money Saving Expert, publicised how regular members of the public could claim compensation for PPI miss-selling. Following a massive rear guard action fought through the High Court by the Banks, final victory was declared for the FSA and Office of Fair Trading. The flood gates were then opened for mass compensation and well over two million (and counting) people who were miss-sold PPI cover were paid out.

So what’s new?

Just when it was thought the PPI claims industry had done all it could to publicise PPI compensation, the FSA decided upon a final mopping up exercise in 2012. They have instructed every Payment Protection Insurance provider to write to their PPI customers effectively inviting them to claim if they were miss-sold. The letters are expected to trigger up to another £3bn in compensation payments, incredibly this will double the amount that has already been paid out to people who have claimed so far.

What about the people who were NOT miss-sold?

Good news too for mortgage payers who bought a version of this type of cover called Mortgage Payment Protection Insurance. This is a useful product for anyone, especially those with young families, who lack savings and need money to pay their major bills if their breadwinner cannot work. It was also not widely miss-sold, despite ‘payment protection’ being in the product title. In fact the FSA encourage people to consider this cover as part of a financial protection package, provided it is paid monthly and only for as long as the cover is needed.

From April 2012 letters in the form of annual statements must be sent to all holders of Mortgage Payment Protection Insurance. Each statement will encourage people to shop around. This is because the FSA now insist that every statement must give the website address of the Money Advice Service where price comparison tables enable consumers to compare like for like cover from different providers.

Why is this important?

There are massive potential savings as this cover can be bought for far less these days. More competition, especially on-line, means consumers can save hundreds of pounds per year by switching their cover. The huge commissions paid to banks and building societies that drove up prices can be bypassed. Many on-line specialists offer a risk free switching process guaranteeing no break in cover. The Banks are likely to suffer yet another drop in revenue as their customers ditch their bank policies and switch to direct providers for the same cover with far lower premiums.

Mortgage Payment Protection Insurance will typically pay out up to £1,500 per month, for up to a year, if the policyholder cannot work due to accident, sickness or unemployment. With the UK jobless total still rising remorselessly toward 3 million, not only is the threat of redundancy widespread, it is also the length of time between jobs that can see individuals and families get into serious financial difficulties. This cover is intended to bridge the gap between jobs and supplement any existing savings. Critically, the insurance payments are not taxed and they do not prevent the policyholder from also claiming State Benefits.

Mortgage Payment Protection Insurance is one of the few affordable ways for an individual to cover the huge difference between State Benefit entitlement and the bills they have to pay. For example, Job Seeker’s Allowance is currently £67.50 per week. However the weekly cost of covering the basics for the average family have been calculated at £500. There are large numbers of people who could benefit from this cover as well as the thousands who are already insured and could switch provider to save £100’s.