When you take out a loan, the prospect of something happening to prevent you being able to repay it is frightening.  It’s no wonder that so many of us are easily persuaded to take out loan insurance.

If you are a healthy person with a good secure job, you may consider that nothing is likely to happen to prevent you from repaying your loan.  So you may feel it’s fine to give the loan insurance a miss.

On the other hand, you may not be in such a secure situation.  For instance, your job may be in a threatened sector of the economy.  At the present time, there are plenty of those.  So you may feel that redundancy is a very real possibility.  Or you may have had a health scare, such as a heart attack, and have received a warning from your doctor that things could be worse next time unless you take very good care.  Or again, you may drive every day along a stretch of road that is known to be an accident black spot, and think that one day it could be you.  For any of these reasons, loan insurance may seem an attractive idea.

Unfortunately, if you are in any of these situations you come up against the concept of foreseeability.

This means that, for example, if you are made redundant, and your sector of the economy has been one that has been seen as especially threatened by the downturn, the insurer could argue that there was a “foreseeability” of redundancy when you took out the policy.  So they could refuse to pay out.  Of course, you couldn’t take out a policy if you had already been issued with a redundancy notice – but if you hadn’t, you could have assumed that you were eligible.

Again, you could be feeling perfectly healthy and working normally when you take out your loan insurance policy.  However, if you then have a heart attack, and the insurers learn that you had a previous heart scare, they could argue that there was a “foreseeability” of a heart attack and so refuse to pay out.

The problem is that definitions of foreseeability vary from one insurer to another.  The best you can do is look carefully at any loan insurance policy that you may be considering taking out.  If necessary discuss your situation with an insurance broker and see if your circumstances would lead an insurer to regard any event as “foreseeable”, and so disallow your claim.  The broker may well be able to help you find a policy that could cover your particular situation.  Having a loan insurance policy can make you feel secure – but if it’s a policy that won’t pay out when you need it, it could be a false sense of security.