What is the need of loan Protection Insurance?
There are many debates among specialists concerning the need for the so-called “Loan Payment Protection Insurance.” This financial insurance is designed to protect the owner of a certain loan-type in case he becomes unable to pay the loan-instalments. The insurer’s help consists in paying those instalments instead of the insolvent insured. However, this protection lasts only for a specified period of time, which could be 12 to 24 months. Until that time, the insured has to arrange his financial situation.
But why is it advised to purchase a Loan Protection Insurance?
It is principally because of the risks carried by a loan and by owing money to a particular company whom one obtained the loan. No one can predict the future, and there is a slight chance for anybody to become unemployed, particularly in this crisis-period. Financial disability due to a serious accident or sickness may also put people into danger, and not meeting financial commitments can bring people’s life to ruin.
Moreover, more than 70% of people are not eligible for income-support in such situations, and even those who are, receive only a small percentage of their regular income. So it is a good idea to purchase Loan Protection, in order to prevent such disappointing situations.
What does this insurance-type cover?
Loan protection insurance provides coverage in case of hospitalization, accident, sickness, terminal illness, death, as well as in the event of involuntary unemployment. In such situations, Loan protection will pay the insured’s monthly debts up to a predefined amount written in the contract. This policy is for people who are 18-65, who have a personal, a car or a credit card loan and who have a secure job at the moment of the policy’s purchase.
Talking about typology, one may choose the Standard Policy, which does not take into consideration the insured’s age, gender, or occupation. The policyholder may choose the needed coverage-amount, while the maximum coverage-period is 24 months. Nevertheless, this policy pays only after 60-days from the date of the claim. Compared to the first, the Age-Related Policy’s cost is influenced by age, and thus, the quotes can be less expensive. The maximum coverage provided is for 12 months.
What are the benefits of having loan protection?
Depending on the attentiveness of one’s research regarding the various policy-offers, a loan protection may pay off if one chooses an inexpensive and appropriate policy. Similarly, loan-protection is beneficial for people’s credit score, due to its help in insured people’s loan-payments.
It is important to know that this coverage is not obligatory for a loan-application although some loan providing companies may try to give people that belief. Generally it is better to find an independent insurance-provider than to buy the scheme from the loan-provider. Similarly, in order to determine whether a particular policy is appropriate for one’s personal circumstances, it is useful to take a close look at the policy’s clauses and exclusions. It is also worth checking if one really needs this insurance-type as one might be covered through his/her job, in which case he/she automatically gets a disability-and-sick pay for at least 6 months.
The disadvantages of the loan protection insurance are that they can be quite expensive, in particular, if one has a bad credit-rating. Note that large banks tend to charge higher premiums than independent lenders, and one will have a higher premium if purchasing the insurance right at the moment of taking out the loan. Most of the times, it is more cost-saving to purchase the insurance separately, that is to say, at a later date.
Finally, it is important to understand that being well-informed is essential. For instance, one needs to review the clauses as well as the policy-exclusions to make sure if he/she qualifies for submitting claims. A policy may not allow the insured to receive a payout if he/she has a part-time job or a short-term contract only, if he/she is self-employed, or if has a pre-existing medical condition. A successful review of people’s financial situation will make them sure if they really need a policy. A final advice: it is possible to cancel the loan protection insurance under 30 days from the start-date and get full refund, but only if no claim has been made yet.