Post Office offers 'fair' payment protection

Payment protection policies are probably today's most controversial and expensive insurance - but next week the Post Office will launch a "fair deal" product which it says will be one of the cheapest on the market.

The Post Office scheme undercuts the typical bank payment protection policy by almost half. For example, the big four banks all charge around £280-£285 a year to protect a credit-card balance of £3,000, but the Post Office policy will cost only £162.

Post Office bosses said they will follow guidelines set down by the Financial Services Authority, to make sure the policy satisfies the concerns of regulators.

Called Lifestyle Protection, the Post Office policy will cover up to 60% of gross monthly income, subject to a maximum of £2,500 per month. Most ailments that prevent someone from working will be covered, including back problems and psychiatric disorders, for up to a year.

But rival provider British Insurance says a small print clause in the policy allows the Post Office to terminate the policy at 30 days' notice. The company's managing director, Simon Burgess, says consumers should look for a five-year non-cancellation clause, which offers protection from insurance companies that decide to cancel when the policies are no longer profitable.

British Insurance (bestinsurance.co.uk) will next week launch a mortgage payment protection policy that it says undercuts the banks by 75%. Typical premiums will be £1.60 for each £100 of monthly mortgage payment to be protected, compared to Alliance & Leicester's £7.95 and NatWest's £5.12.