If you have taken out any form of loan or credit the chances are you will have been offered personal loan insurance. The type of insurance is similar whether it’s a mortgage or a bank loan, a store card or a new car.
The insurance may be similar but the way in which it is offered varies greatly from one provider to another.
• Some providers will give you the impression that taking the insurance is a condition of getting the loan.
• Others will give you a very hard sell, making you feel it’s impossible to say no.
• Some will simply say, “Would you like to protect your monthly payments?” – to which, of course you will say “Yes”. But there’s no attempt to look at your specific circumstances to see if the policy actually will protect you.
• There are some providers who will actually add the insurance policy to the loan without telling you! You may find this incredible, but it does happen quite frequently. You don’t actually realise you have paid for the insurance until you receive the paperwork a couple of weeks later – by which time, cancelling can be quite difficult.
• There are of course those who will politely ask you if you would like personal loan insurance and won’t push you either way. But as there is good commission on these policies, such people are in a minority!
Of course, it can be quite important to have a personal loan insurance policy in place. If you find yourself unable to make your payments, it can be disastrous. At best it can cause you severe stress and can adversely affect your credit rating. At worst you can lose your belongings or even your house.
So insurance can be important. But it’s quite possible to find yourself paying more than you need, or even end up with a policy that is of little or no use to you. So here are some rules to follow to help you protect yourself against unnecessary expense.
• Don’t take any notice of anyone who tells you that you can’t have the loan without taking out the insurance. You can take the loan with no insurance, or you can take the insurance from a different provider.
• If you decide you do need a personal loan insurance policy, you are usually better taking out a standalone policy from an independent provider. These are usually much cheaper, and you can adapt the loan to your specific needs. Ask your independent broker how to find one.
• If you do take out a policy, don’t pay with a single lump-sum premium up front. This can make it hard to get any of your premium back if you pay off the loan early. On the other hand, if you are taking the lender’s own insurance, make sure they don’t roll the premium payment into the cost of the loan. This would mean you were paying extra interest throughout the term of the loan. What you want is for the premium instalments to be added to the monthly statement.
• Always remember that the person selling you the insurance is not concerned with your personal circumstances. The onus is on you to check whether the policy is suitable for your needs. For instance, if you are self-employed or retired, a policy insuring against redundancy would be a waste of money.
A personal loan insurance policy that is suited to your needs and circumstances can be of great benefit to you if the worst happens. If you follow these simple rules, you’ll enjoy protection and won’t pay too much for the privilege!