Perhaps you have been put off the idea of obtaining loan protection insurance because of the many horror stories about mis-selling that have been doing the rounds. It’s true that some lenders do take advantage of borrowers’ fear of having a debt that they can’t pay. The lenders can use this to sell them policies that are not much use to them, or even include the policies in the loan without the borrower’s knowledge.
However, this doesn’t necessarily mean that nobody should take out a loan protection insurance policy. But if you are embarking on any sort of financial arrangement, and want to protect your payments, you must examine policies carefully to see if they would be of benefit to you.
These are some of the ways in which you could benefit from loan protection insurance:
• Loan protection insurance is especially worth considering if you have taken out a secured loan. The most usual collateral for a secured loan is your house. The idea of losing your home is appalling, so loan protection insurance would provide you with peace of mind. However, you must check the small print to make sure you qualify.
• Whether your loan is secured or unsecured, defaulting on the loan will seriously impair your credit record. This will make it very difficult to obtain any sort of credit in the future, including a mortgage. At the moment, mortgages are in such short supply that it’s virtually essential to have a perfect credit record in order to get one. Having loan protection insurance can ensure you keep up your loan repayments and so protect your credit standing.
• Some loan protection insurance policies are refunded at the end of the loan period, provided that no claim has been made. If you obtain one of these, it represents a useful form of saving. But you may need to shop around to find one of these.
• To be sure of benefiting from any loan protection insurance policy, do check carefully that all of the eventualities covered do actually apply to you. For instance you won’t benefit if the policy covers you for redundancy when you are retired or self-employed. Look for a policy that enables you to pick and choose what you are covered for.
Even if you believe that all is well with your health and your employment situation when you take out a loan, you never know what is round the corner. Many people realise too late that they should have had some form of loan insurance in place. Provided you shop around, avoid paying over the odds, and make sure that you aren’t buying cover that’s irrelevant to you, loan protection insurance can only benefit you.