Protecting your Financial Commitment with Loan Protection Insurance.

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You probably wouldn’t think twice about taking out insurance to protect your car or home, but what about protecting your financial commitments?

If you are unable to work because of an injury, illness or because you lose your job, Loan Repayment Cover could pay your minimum monthly repayments until you return to work.

Credit Life Loan facility Protection Plan covers the policy holder against the borrower’s inability to repay, as a result of, death either natural/ accidental,

Total and permanent disability as a result of accident or by illness.

Loan Protection Insurance can be purchased in two ways: you can take it out when your loan is first approved, or you can choose to buy it at a later date, to protect an existing state bank loan.

Loan protection insurance or payment protection insurance (PPI) is designed to help policyholders by providing financial support in times of need. Whether the need is due to disability or unemployment, this insurance can help protect your monthly loan payments and protect the insured from default.

How it works

The Loan protection helps policyholders meet their monthly debts up to a predetermined amount.

These are short-term policies offered for protection, providing coverage generally 12 to 24 months depending on the insurance company’s policy. Benefits from this policy can be used to pay off personal loans and other car loans. This type of policy is usually done for policy holders from the ages of 18 – 65 years, who are working at the time the policy is purchased.

Generally it is advisable to but the policy that best applies to your needs and current situation; otherwise you could pay more than you have to.

The cost of payment protection insurance depends on where you live, the type of policy you select, whether it is standard or age-related and how much coverage you would like to have.

Loan protection insurance can be very expensive. If you have very poor credit history, you might end up paying an even higher premium for coverage.

If you think this type of insurance is something you need, consider looking for a discount insurance group that offers this service. Premiums through large banks and lenders are generally higher than independent brokers, and the vast majority of policies are sold when a loan is taken out. You have the option of choosing whether to buy the insurance separately at a later date, which can save you some few cash. When buying a policy with a mortgage,  or any other type of loan, a lender can add the cost of the insurance to the loan and then charge interest on both, which could potentially double the cost of borrowing.

Types of Policy

Standard Policy

This policy disregards the age, gender, occupation and some habits of the policyholder. The policyholder can decide what amount of coverage he or she wants. This type of policy is widely available through loan providers. It does not pay until after the initial 60-day exclusion period. Maximum coverage is 24 months.

Age-Related Policy
With this type the cost is determined by the age and amount of coverage the policyholder wants to have. Maximum coverage is for 12 months. Quotes might be less expensive because according to insurance providers, younger policyholders tend to make fewer claims. Depending on the company you choose to provide your insurance, the loan protection policy sometimes includes a death benefit. For either type of policy, the policyholder pays a monthly premium in return for the security of knowing that the policy will pay when the policyholder is unable to meet loan payments.

Insurance providers have different starting dates for when to begin coverage. Generally, an insured policyholder can submit a claim 30 to 90 days after continuous unemployment or incapacity from the date the policy began. The amount the coverage pays will depend on the insurance policy.

The Bottom Line
When searching for a loan or PPI, always thoroughly read the terms, conditions and exclusions of the policy before committing yourself. Look for a reputable insurance company.

Review your particular financial situation in detail to make certain that getting a policy is the best approach for you. A loan protection policy does not necessarily fit everyone’s situation. Determine why you might need it; see if you have other emergency sources of income through either savings from your job or other sources.

Go through all exclusions and clauses like;

  • How cost-effective is this insurance?
  • Are you confident and comfortable with the company that is handling your policy?
  • These are all issues that must be addressed carefully before making such an important decision and commitment.

Finally
Depending on how well you research through the different policies, having a loan protection policy can pay off when you select a policy that is inexpensive and will provide the coverage that is suitable for you.

In terms of credit score, having a loan protection insurance policy helps maintain your current credit score because the policy enables you to keep up-to-date with loan payments. By allowing you to continue paying your loans in times of financial crisis, your credit score is not affected.

Having this type of insurance does not necessarily help lower loan interest rates. When you shop for a policy, be leery of loan providers that try to make it seem like your loan interest will decrease if you also buy a payment protection insurance policy through them. What really happens in this case is that the loan interest rate difference from the now “lowered” rate is latched onto the loan protection policy, giving the illusion that your loan interest rate has decreased, when in fact the costs were just transferred to the loan protection insurance policy.

Policies differ, so check terms and conditions of the coverage to see what exclusions and clauses are stated in the policy and when they would start. Review the policy carefully. Some policies do not allow you to receive a pay-out under the following circumstances:

  • If your job is part-time
  • If you are self-employed
  • If you can’t work because of a pre-existing medical condition
  • If you are only working on a short-term contract
  • If you are incapable of working at any other job other than your current job

Understand which health-related issues are excluded from coverage. For example, because diseases are being diagnosed earlier, illnesses, such as cancer, heart attack and stroke might not serve as a claim for the policyholder because they are not considered as critical as they would’ve been years ago when medical technology wasn’t as advanced.

By Sheila   A. Williams

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