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Shepherds Friendly Mortgage Payment Protection Plan

Cheshire-based Shepherds Friendly was set up 180 years ago and now has assets of around £60m and around 25,000 members. Despite its traditional roots, it is a pioneer of teleunderwriting, offering the prospect of faster application turnarounds.

April 2008 Product Reviews

PRODUCT

Shepherds has developed a variant on the traditional mortgage payment protection (MPPI) theme, targeted at people who have fixed term mortgage deals. These have become increasingly popular in recent years, with many lenders offering deals to fix or reduce costs for a known period, typically one to five years. The back to day one (after the initial 30 day waiting period) plan can therefore be written for a one to five year payment period.

So, a customer with a three year fixed rate mortgage might choose a three year plan, with benefit payable to the end of that term. If they immediately became disabled, the plan could pay for up to three years but if they became disabled after say two years, the benefit would still only be paid to the end of the original term e.g. for up to one year in that case. For claims during the last few months, benefits will be paid for up to nine months. For example, if a claim is made during the last month of the term, benefit will be paid for up to an extra eight months. The plan can be renewed at the end of the term, although terms and pricing could have changed at that stage.

Unlike normal MPPI plans, the insurer cannot change terms and pricing at very short notice (which can be as little as 30 days) so customers get greater protection for their mortgage.

The plan is available to UK residents aged 18-60 but must be taken out within 30 days of taking out a mortgage. It is not suitable for existing mortgagors unless they are changing the terms of their mortgage. The maximum insured benefit is the lower of 60% of “normal” monthly income and 100% of monthly mortgage costs or the customer can cover 130% of mortgage costs. This means that customers can choose 100% or 130% cover but not say 120%. The overall maximum benefit is £2,000 a month.

Premiums are payable on the first, eighth, 16th or 24th of a month only.

Exclusions are fairly standard, although some of the terms and conditions are not very clear and, if applied strictly, could result in some claims being declined.

COMPETITIVENESS AND PRICE

For a three year term plan premium rates are £2.43 per £100 monthly benefit if aged 18-30, £2.86 for age 31-40, £5.94 for age 41-50 and £12.76 for age 51-60.

LITERATURE

Literature is simple and appealing. Although launched on February 6, by March 6 details of the plan were still not on the website.

COMMISSION

30% a year.

WHAT THEY SAY

Chief executive Geoffrey Spencer said: “Our product has been genuinely developed to protect the consumer, which is why it provides cover for the full term of the special period, up to five years, ensuring the customer feels confident that they are properly covered.”

WHAT WE SAY

This is not full MPPI as most brokers will know it as it does not cover unemployment. However, it does pay benefit for up to five years and, unlike most MPPI, the insurer does not have the option to change terms and premiums at just a few weeks’ notice.

There are some quirky product details – you can cover 130% of your mortgage costs but not 110% for example and, on a literal interpretation, if you ever took part in go-karting events with workmates, and did not declare that, Shepherds could turn down your claim. We are sure that they would not – but the policy drafting is a bit weak in places. The plan also only covers mortgages for a main residence but not a second home for example.

We like the fact that Shepherds has come up with a very innovative product and that it adopts teleunderwriting, but feel that there are some areas in which the product could usefully be improved to make it more relevant to more people.

RATING

PROS

An innovative variant on the MPPI theme

Benefits payable up to five years and very low cost at younger ages

Adopts teleunderwriting to speed processing

CONS

Does not cover unemployment

Some quirky product design details that could catch out the unwary

Expensive at older ages