Mortgage brokers have been warned to pay due attention to all clients’ protection needs, or risk having complaints upheld by the Financial Ombudsman Service (FOS) and hence needing to pay compensation.

The comments were made by Kevin Carr, chief executive of Protection Review, an organisation set up to provide expert analysis of the protection and health insurance sector. Speaking at his organisation’s recent conference, Mr Carr said that FOS representatives had warned him about this issue, especially with regard to how clients affected by long-term sickness could continue to pay their mortgages.

Mr Carr also commented:

“Some advisers don’t know when to introduce protection – some maybe try to sell it at the wrong time – others will argue customers aren’t that interested and PPI has put them off, while some advisers will blame a lack of knowledge, with products perceived to be complex and constantly changing.”

Mr Carr gained support from Mark Graves, the sales director of advice network Sesame, who said:

“From a network’s perspective, if you don’t complete adequate notes to say the client was informed about the need to take out income protection, then you’re vulnerable to claims further down the line.”

Mr Graves went on to say it was a “dereliction of duty” if a mortgage adviser failed to highlight the need for a mortgage borrower to effect appropriate insurance.

Teresa Fritz, a member of the Financial Services Consumer Panel who was at the conference, questioned whether some customers were even aware of the existence of permanent health insurance and similar products.

Firms who hold mortgage permissions cannot be forced to sell protection products if they do not wish to. However, at the very least, mortgage brokers should highlight the importance of having the right protection in place, and strongly suggest that clients purchase this elsewhere.

Insurances mortgage borrowers could have in place include:

• Buildings insurance – to ensure that the security for the mortgage (i.e. the home) is covered against severe damage
• Life insurance – who would pay the mortgage if the named borrowers died?
• Critical illness insurance – with all the worry that comes with a serious illness, knowing that the mortgage would be paid off provides some level of peace of mind
• Payment protection insurance – to cover payments for a year or more if the client suffers loss of income due to being unable to work due to accident, sickness or unemployment
• Short-term income protection – to cover payments for a few years if the client suffers loss of income due to being unable to work due to accident or sickness
• Long-term income protection (permanent health insurance) – to cover payments until the client recovers from a long-term illness, or for the rest of the mortgage term if they remain ill

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.