Is this insurance exit fee legal?

By THIS IS MONEY
Updated:

 

I decided not to renew my buildings insurance with Coventry Building Society after shopping around and finding a cheaper quote. I notified the society and they wrote to say there was a charge of £25 for not renewing.

Exit sign

I told them I would not pay it as we all have the opportunity to shop around on insurances. They have added the £25 to my mortgage account to make sure they get it.

Is this legal? If it is, all insurance companies could be doing it on all insurance policies. A.H., Henley-in-Arden, Warwickshire

Simon Moon from This is Money replies: Imagine you are visiting a supermarket. As you are about to leave, an assistant blocks the exit and tells you it will cost £25 to get out. When you protest he smiles, points to the small print on your till receipt and refuses to budge.

Outrageous? Of course it is, but that is how too many financial services providers treat their customers today.

What they fail to realise is that, as in the supermarket scenario, you won't go back to a business that treats you badly. Perhaps they just don't care.

Your £25 charge, say the Coventry, was mentioned in your mortgage agreement and in annual mortgage account statements. It was not a penalty fee for going elsewhere, but to cover the cost of making sure the mortgage they had lent you was still covered.

I was told: 'When a borrower transfers from the society's buildings or buildings and contents policy to another insurer, a charge is made to cover the cost of the administration involved in checking that our interests remain adequately insured. This is not unusual in the mortgage market.'

Which ever way they dress this up, it is still a slap in the face.

In your case, the Coventry realised rather late in the day that you had paid off your mortgage so they have decided to refund the £25.

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