When you take out a loan, or virtually any type of financing or credit, you are usually offered loan payment insurance. It often seems easier to agree and allow the lender to roll the insurance premiums into the loan repayments. However this can be an expensive mistake. The costs of loan payment insurance policies vary enormously, so you could probably save a lot of money by shopping around and comparing costs.
Variations in the cost of policies can often be based on your personal circumstances, or the level of cover that you opt for.
• The main variation in the cost of loan payment insurance is between age-related and non-age related policies. If you are taking out an age-related policy the quote will vary according to your age – obviously the younger you are the less you pay. Non-age related policies provide a flat-rate quote for all applicants.
• Some loan payment insurance policies are sold as a “package”, covering every eventuality whether it is relevant to you or not. Obviously these are the most expensive. You would be better advised to look for policies that allow you to opt for only the type of cover you require. For instance, if you believe you are in a secure job and redundancy isn’t a risk for you, you can opt out of the redundancy aspect. The main eventualities are unemployment /sickness /accident /terminal illness /death. The more of these you wish to cover, the more your policy will cost.
• Policies can also vary in cost according to the length of the waiting period for payout. Policies can start paying out 30, 60 or 90 days after you lose your job. Some can also be backdated to day 1, although you don’t actually start getting the money till after the 30-day period. The longer you can opt to wait, the less you will pay for your premiums.
• The cost of your loan payment insurance can also vary according to your personal circumstances, including your credit history and your health record. The insurers will also look carefully at your employment record and your current employment situation. If this seems insecure, you could either be refused insurance or be charged a loaded premium.
All this can be very complicated to work out. Sometimes it’s a question of balancing one aspect against another. If you need help in finding the best value policy, consult a broker.