Loan Insurance Explained

In the UK, it seems as if no one could get by without having a loan. Loans can be used for house expansions, holidays, buying new cars and even for educational purposes. In as much as you consider loans to be necessary, loan insurance should be just as important. Because you depend on your income to pay your expenses, if this income was to suddenly disappear, this could prove to be very risky and financially dangerous.

Loan insurance is a protection product designed to provide temporary help if you find yourself out of work for an involuntary purpose. The insurance replaces the majority of your income so if you were to lose your job, you’ll still be able to meet your monthly commitments.

Loan insurance is designed to pay out a selected monthly benefit in the event of involuntary unemployment as well as prolonged illness or accident. So if you were made redundant, if you were too sick to work or if had an accident, these are the incidents that the policy will cater for.

Loan Insurance from Burgesses

Features of loan insurance policies vary from provider to provider, but generally they have the following in common:

• Once you make a claim, the insurance will pay you a replacement income for a specified period of time. This is usually for up to 12 months but there are policies that will pay benefits for up to 24 months.
• Most providers require you to be out of work continuously for between 30 to 90 days before they will begin paying benefits.
• There are rules which specify how long after you bought a policy you are able to make a claim. Very often the time period is six months, but you can check with your policy provider for more specific details.
• The benefits do not cover your entire salary and there are maximum benefit levels. Despite this, the replacement income is usually adequate for customers needs.

Loan Insurance

The first and main benefit of this insurance is the peace of mind you receive once you’ve purchased your protection product. You can rest assured that if your salaried income were to suddenly disappear, you won’t be forced into financial difficulties.

If for example you had a secured loan which uses your home as collateral and you were unable to repay the loan, this could result in you losing your home. This is the last thing you’ll want so to avoid a situation like that, it is best to protect your income.

Other benefits include:

• The ability to maintain monthly payments and keep a clean credit profile which will help you attract competitive rates on financial products in the future.
• Because your payments will remain up to date, there is less chance of defaults or county court judgements (CCJs) or even bankruptcy occurring.
• You can continue to enjoy your standard of living while you are searching for new employment.
• If you were ill, you will be able to concentrate on regaining your health. You won’t have to deal with the hassle of creditors calling or knocking at your door.
• The benefit is paid completely tax free so you can use 100 percent of it.

This insurance is very important because if you lost your income, where else will you get the financial help you need. Relying on Government benefits is not guaranteed as there is so much demand for the state resources and because the qualifying rules are becoming stricter, who knows if you’ll qualify.

If you did qualify, will the funds be enough to maintain your standard of living? Asking friends and family members may also be fruitless, because they may have their own bills to pay which doesn’t leave extra cash to help anyone.

There are so many providers on the market that understandably, it could be quite a task deciding on which policy and provider to choose. In addition there has been so much talk about mis-selling in the loan and insurance market and this does not help.

When searching for your loan insurance provider, you can rest assured that there are standards and ethical guidelines they must meet. The Financial Services Authority (FSA) and the Office of Fair Trading (OFT) are monitoring the market quite closely. Following one of their joint investigations, in 2007, a number of well known providers were fined for mis-selling so providers are now kept on their toes so to speak.

You should also know that the loan insurance products themselves are not the problem. The problem related to the lack of information given to potential clients by the provider. Some people were sold products they weren’t eligible for because they did not understand the terms and conditions of the product.

To avoid falling into that situation, there is one simple thing you can do:

• Make sure you know all the relevant information about the potential product and the provider. Read the terms and conditions carefully. Ask questions and don’t be afraid to cancel if the policy does not suit your needs.

When you borrow a loan, the loan provider will try to sell you their insurance, but you should get quotes from independent providers as well. Very often, the stand alone providers have much lower premiums than the major high street providers, so you could end up saving on your policy. The coverage they provide is also comparable so it’s not like you’ll be sacrificing benefits for a lower premium.

Loan insurance is vital in today’s credit market and you have every right to enjoy the proceeds of your loan. You can continue to enjoy the benefits of your new car or home expansion for years to come, as long as you protect your income with an insurance policy.

There is no price to be placed on the peace of mind you’ll receive just by knowing if you lost your job, your life will continue as normal without any further financial losses with loan insurance.