Loan Protection Insurance Explained

We live in a society where many of us depend on credit cards and loans to purchase the everyday things we need. Our exposure to consumer debt is becoming greater and greater and almost no one can escape. And although having a loan seems to be a natural part of life, you need to ensure that you are protected should the unexpected happen. If you were to suddenly be out of work, loan protection insurance may be the only thing that could supply you with the income you need to stay afloat while you seek alternative employment.

Loan protection insurance is a type of cover which will pay you an income if you were to lose your job involuntarily or became unable to work due to sickness. Generally you will be covered if you were incapacitated and unable to work, if you were made redundant or if you suffered an accident.

Loan Protection Insurance from Burgesses

• The policy provides short term relief if you were to lose your job. Benefits are paid for a maximum period of 24 months however the average payment period offered by providers is 12 months.
• To determine your level of cover, you will need to calculate the total you pay out in credit card and loans each month and use this as a guide.
• Once your benefit level is chosen, this entire amount will be paid tax free in the event of a claim, subject to the provider’s own limits.
• Most lenders require you to be out of work continuously for 30-90 days before the payment of benefits can begin but check with your provider for the specifics of your policy.
• Each provider will have exclusions attached to their policies, so be sure to find out what they are before signing up.

Having loan protection insurance gives you peace of mind. It assures you that life will continue even if something prevented you from earning an income. If you think of how things could turn out if you don’t protect yourself, you’ll realise how important this type of cover is.

What if you need your car to go to interviews for a new job, but you could not keep up payments and the lender reclaimed the vehicle?

Imagine gaining a poor credit rating due to missed loan and credit card payments, which could even lead to defaults and court proceedings. Not only does this cause stress and anxiety, but it makes it more difficult to obtain loans and credit cards at decent rates in the future.

These are just two examples of how expensive it could be if you choose not to have loan protection insurance. Protecting yourself against the ripple effect of losing your job would be a very wise decision. No one wants to think about losing their job, but at least if it were to happen, you’ll be covered.

Loan Protection Insurance

Because life is so uncertain, should the unexpected happen, you may not be able to rely on your friends or even family members to support you financially until you return to work.

Even relying on state funding is a bit hit and miss. There is ever increasing demands on public resources and even if you were to qualify for benefits, you are still not guaranteed to receive enough to keep your bills paid and food on your table.

By purchasing your own protection policy, you can rest assured your lifestyle will continue as normally as possible in the event of involuntary unemployment.

When you take out a loan your lender will try to get you to add on their cover as part of the agreement. You don’t have to take up their protection product however. Very often the loans offered by the lenders are very affordable but when you add on the protection products, you can see a sharp rise in premiums.

To secure a better deal, feel free to obtain quotes from independent and stand alone providers as they tend to have cheaper premiums on the protection products and the cover is usually just as good as the major providers.

There has been much talk about mis-selling of protection products in the past, but you should know that the protection products are not the issue. The issue lies with providers who fail to give potential clients all the necessary information to make an informed decision.

It is very important to ensure that the product suits your needs and should you make a claim, it will be paid.

So how can you avoid falling into the mis-selling trap? Here are a few tips to help you.

• Take note of the eligibility rules, e.g. resident of the UK, full time employed, not retired etc.
• Read the terms and conditions carefully and question anything you don’t understand.
• Take note of any particulars which relate to existing medical conditions as an example. The key is to make sure the products are not just general polices. Make sure your exact circumstances are discussed and considered.
• Choose a provider that is regulated by the industry watchdog.

In addition, approaching a stand alone or independent provider should help you when selecting your loan protection insurance policy. They usually take time to go through your circumstances in detail and they have no interest in mis-selling products as the publicity will be detrimental to their business.

The Financial Services Authority (FSA) along with the Office of Fair Trading (OFT) continues to monitor the activities of providers so they are more likely to operate by the book. This means that you can choose your product with confidence but don’t forget to do your homework and follow the tips listed above.

As much as loans are a part of life, loan protection insurance should be as well. Life isn’t guaranteed to run smoothly all the time. While the last thing you’ll want to do is lose your job, if you do, at least with your loan protection insurance in place, you can continue to enjoy life while you get back on your feet.