Loan Payment Insurance - Pros and Cons

When you take out any kind of loan or credit agreement, you are almost certain to be offered loan insurance.  This is a policy that is supposed to protect you in case anything happens to prevent you making repayments on your loan.  You can have one whether it’s a mortgage, a bank loan, a credit arrangement for buying a car, a store card, or any other kind of credit. 

Loan insurance is very popular and thousands of policies are sold every year.  So why do so many people buy them? 

The person selling you one of these policies will almost certainly mention “peace of mind”, and this is certainly an important reason for buying a policy.  Obviously if you’re taking on a major financial commitment, the thought of being unable to meet the payments would be a nightmare.  It could mean the bailiffs seizing your belongings, a seriously impaired credit rating, or at the very worst losing your home.  So the idea is that, with loan payment insurance, this is no longer something you have to worry about.

In addition, of course, most of us like to feel we are being prudent and thorough.  We all like to think we have taken every possible precaution against things going wrong.  If you refused to take out loan payment insurance, you might well feel guilty about failing to protect yourself and your family. 

So taking out loan payment insurance can be a good idea.  If you did find yourself made redundant, or unable to work because of an accident, this would be a highly stressful situation.  Knowing that your loan payments could continue would greatly reduce the stress.

However, there are also some downsides to loan payment insurance, so you need to consider these before you decide.

• A loan payment insurance policy that is linked to the loan itself will be “one size fits all”.  It wouldn’t be tailored to your actual situation so it might not be suitable for you.

• A loan payment insurance policy only protects against very specific circumstances.  If you buy a policy thinking it will cover you whatever happens, you could be in for a nasty shock.  For instance, it could claim to cover you against “illness”, but in the small print there could be a list of conditions that are not covered, including some quite common ones.  The small print also usually contains a list of exclusions, some of which might apply to you – for instance, those in casual or seasonal employment.  Sadly, the people selling the policies don’t often encourage you to read the small print before buying.

• A policy added to the loan can add significantly to the cost of the loan.  You could potentially find yourself paying out considerably more each month, without receiving any real benefit.

A loan payment insurance policy may well be very worthwhile for you.  But if you are thinking of taking one out, don’t take anything for granted.  Read the small print carefully and find out if the policy is suitable for you. You will find that a loan insurance policy that is independent of the loan itself is much more flexible. If not, talk to a broker and find one that is.

Why buy loan insurance?

Why should you buy loan insurance?

If you apply for a personal loan, hire purchase or finance agreement you are more than likely to be offered insurance to cover the loan repayments. This loan insurance will cover you against accident, sickness and unemployment but may also include death or critical illness.

The loan insurance policies offered by finance and loan companies are very expensive as you are a captive market. Very few people who apply for a loan will bother to see if the insurance cover is available at a cheaper price elsewhere. The loan company want you to have the cover as the earn a nice commission for each loan policy sold.

Buying loan insurance does make sense. You are protecting the personal loan payments in case you are unable to work. However, it makes even more sense to spend some time researching loan insurance to see what independent policies are available. Invariably, these will be much cheaper than the policies offered with the loan or finance package.

We offer loan insurance from British Insurance Limited who provide good quality insurance cover at reasonable prices. For more information please visit our loan insurance page http://www.enhancedwealth.co.uk/loaninsurance.htm

Loan Protection Insurance Who Needs It?

A simple question with a simple answer, any borrower is best advised to take out some form of loan protection insurance. It makes very little sense to take on debt, and leave yourself unprotected from the adverse effects of falling ill or becoming unemployed and being unable to meet your loan repayments. People have had their entire lives ruined by finding themselves drowning in debt they can no longer afford to repay.

Loan protection insurance is relatively inexpensive, and should be considered an absolute necessity by anyone undertaking a moderate to high level of debt. The future is unsure; you can never know what awaits you around the next bend, do the sensible thing and protect yourself with loan protection insurance. In recent years it the government has made increasing demands upon lenders to present their customers with cost effective and robust loan payment insurance products, shopping around can find you a great deal, and buy you complete peace of mind.

Loan Protection Insurance – Types of Cover

The standard for of loan protection insurance is sometimes known as an ASU, this form of insurance covers you for:

• Accident – Should you be unfortunate enough to suffer an accident which means you will be unable to pay your debt in full, due to dilapidating injury; your debts will be covered, either by full payment of monies owed, or for the duration of your period of invalidity
• Sickness – If you find yourself too ill to work for an extended period, and are unable to work, your policy will make your loan repayments for you
• Unemployment – For those people who find themselves out of a job, and unable to earn the income required to make loan repayments, the loan protection insurance policy will cover them

This is a basic definition of an ASU style policy; insurers will often offer policies containing only a single type of cover, or a combination of any two. For example, a AS policy would provide cover for only accident and sickness, suitable for people who already have some external form of unemployment cover.

Increasingly, insurance providers are beginning to include life cover as part of the insurance plan, which will repay the entire loan value upon the death of the insured party, alongside other life related benefits.

Obtaining Advice on Loan Protection
Making sure that you are well protected for those adverse situations is an important situation, and one that is best discussed with a qualified professional, who understand the level of cover you require and the best way to obtain it. Make sure that you understand the policy schedule in full before agreeing to the policy; again your broker will be able to answer any questions, or explain any terms that you do not understand.

Enhanced Wealth offer loan protection insurance from British Insurance.