FSA Parents Guide Should Support and Not Dismiss PPI
News that the Financial Services Authority has launched a Parents Guide to Money is to be applauded, but it could push people further away from the financial safety net of Payment Protection Insurance, says PPI lobbyist Sara-Ann Burgess from Burgesses.
Braintree, Essex (PRWEB) November 5, 2008 -- News that the Financial Services Authority has launched a Parents Guide to Money is to be applauded, but it could push people further away from the financial safety net of Payment Protection Insurance, says PPI lobbyist Sara-Ann Burgess from Burgesses.
Sara-Ann Burgess, MD Burgesses
Research shows that the average cost of bringing up a child to age 18 is over £150,000 and the FSA hopes the Guide will help parents become more finally savvy and less likely to fall into debt. Topics covered include; budgeting, state benefits, the cost of children and childcare, maternity and paternity rights, savings and work and there's an accompanying CD Rom calculator to help parents work out budgets, input to child's trust funds, manage debts, return to work, assess eligibility for tax credits and generally tot-up the cost of children and any childcare.
The Guide will be distributed to some 500,000 expectant parents across the UK this year and aims to help 1.5m people financially plan for parenthood by 2011. Although the objective is to make parents more confident and better equipped to deal with financial pressure, Sara-Ann fears that some of its advice could well add to their stress.
She comments, "The Guide emphasises the importance of building up savings to offset the costs associated with a new baby and encourages families to save so they can meet their expanding commitments and build up an 'emergency fund'. I wholeheartedly agree with this advice, but am not so keen on the suggestion that savings are 'the first line of defence for a family' should the income be interrupted due to illness."
Within it's 'Keeping Your Family Secure' section the FSA advises 'although it is possible to take out income protection insurance to pay out if you can't work because of illness, this cover is usually expensive... it is often more realistic to build up some savings in an emergency fund that could tide you over for a short illness at least.'
Sara counters, "I disagree, a whole year's worth of savings could be wiped out if an illness lasted two months or more. Only recently one of the High Street lenders confirmed that the average Briton's savings would only last 52 days if they were unable to work. So how would a family with a baby, yet to build up their savings, cope?"
"And what about redundancy? This should have been mentioned in the context of income protection as it currently poses a far greater risk to the financial well-being of families. It's foolhardy to dismiss a product that can help meet financial commitments and so make the difference between keeping and losing a home. It's wrong to give the impression that payment protection is expensive and better off ignored. As is the case of all insurance, it provides peace of mind, yet the FSA is encouraging families to dip into their savings and 'go it alone'. Once those savings are gone, what's next - the home?"
In another section 'Borrowing and Debt' the FSA advises, 'The aim of PPI is to make your loan repayments for you if you can't work because of illness or unemployment. Typically the policy pays out for a maximum of 12 or 24 months. Sounds a good idea, but watch out. There are usually a lot of exclusions ... and PPI is often expensive. Sales staff might give the impression that you have to take out PPI, but in fact it is nearly always an option - you can turn it down if you want to.'
Sara continues, "I get the impression the FSA has a real 'downer on the PPI sector - there's no reference to the fact that consumers can source low-cost cover from independent providers, or the fact that these providers offer extensive cover with additional support. British Insurance, for example, charges £3.90 per £100 of benefit for accident, sickness and unemployment cover and its mortgage product was recently rated by financial specialist Defaqto as being 'at the very top of the market for its wide-ranging cover and support services'. This was after scrutinising 103 policies."
She concludes, "I know mis-selling is a big issue in the PPI sector, but consumers should not be given the impression that these products are to be avoided. When sold responsibly, they represent great value for money. For a monthly premium of £27.30 with British Insurance, a claimant would receive £700 per month."
"The returns far outweigh the outlay and with so few people now in a position to build up substantial savings, I'm mystified why the FSA hasn't given more balanced advice. Dismissing PPI is not helpful and does little to boost the reputation of this already beleaguered sector," says Sara.
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