If you lost your income due to involuntary redundancy or incapacity, how would you manage without an income? Without loan insurance you might have to struggle when it comes to finding enough money to maintain your usual loan repayments. If you were to fall behind on your secured loan repayments then you can end up in court and you may lose your home. Should you fall behind on your unsecured loan repayments then you might still end up in court and can have bailiffs seize your possessions.
How does cover work?
Loan insurance will provide you with a tax free income when you have been redundant or unable to work for a specified period of time. This income will then go towards you maintaining your loan repayments and will ease the stress and worry associated with a lost income.
When a claim can be put in on the policy?
With some providers you might be able to make a claim once you had suffered from incapacity or unemployment for just 30 days. However, with other providers you can have to wait for up to day 60 or 90 before you can make a claim on the protection.
When checking the terms to find out what you provider pays you should also check to see if your benefit will be dated back to the first day that you became a victim to redundancy or incapacity as well.
How much benefit?
There will be a limit as to how much you can insure so you will have to check this limit with the provider at the time of applying for cover. However, a typical payment protection insurance (PPI) policy will allow you to cover up to £1,500 a month, or half your earned income before tax, whichever amount is lower.
How long does the benefit continue?
The benefit from your loan insurance policy can continue for a period of 12 months with some providers. However there are some policies that might offer you cover that will continue for up to 24 months if you were to have to make a claim for this length of time.
You should always check before taking out a policy and be aware that protection lasting for 24 months will work out dearer in premiums than one paying out over 12 months.
Tailoring a policy
If you do not want to take out loan insurance against unemployment and incapacity together then you can choose the events you want to protect against. For example, you might want to take protection just for redundancy alone or you can choose just to take protection against incapacity if this were to suit your lifestyle better. The events you choose to cover will be reflected by your premiums.
Considering other forms of cover
You don’t just have the option to cover your loan repayments – you can also protect your mortgage repayments or just have a general income in the event of accident, sickness or unemployment.
Mortgage payment protection insurance (MPPI) will allow you to protect your mortgage repayments each month. A policy can make a huge difference to you being able to meet your monthly repayments or losing your home through repossession after falling into mortgage arrears.
Income payment protection provides a replacement income so that you can spend it as you wish and put it towards any repayments that you need to maintain and general day to day costs such as groceries or car fuel.
Why should I consider taking out a policy?
You might consider taking out a policy as an alternative to the income that you might be able to get from the State. You will need to prove eligibility to claim an income from the State and even then you might not get an income that matches your own.
By taking out a policy you will know how much money you will have each month towards your loan repayment and how long that benefit will continue paying out.
Checking for eligibility of cover
There will be some exclusions in any loan insurance offered by all providers. Exclusions are what can stop you from making a claim on the policy so should be checked before taking it out.
For instance you need to live in the United Kingdom, the Channel Isles or the Isle of Man. You will also have to be in full time work, you need to have also worked for 6 months prior to applying for your cover.
Other exclusions you can find
Checking the policy is essential if you are self-employed. While you might be eligible there will be certain conditions that will have to be met in order for you to be able to claim. Usually it will mean you had to stop trading permanently.
If you have an ongoing illness and took out loan insurance then you will also have to check the wording of the policy as it is possible you will not be eligible to claim if this illness caused you to be unable to work.
How to get the best deal for your needs
Loan insurance can be affordable to even those on the tightest of budgets. Shopping and comparing the cost of cover with a standalone provider will lead you to the best savings on the insurance. The cost of cover does vary and the standalone provider will often allow you to make the biggest savings on your insurance when compared with the lender on the high street.
The policy benefits
• You know how much money you will have towards your repayments if needed
• You can tailor the policy to suit your lifestyle by choosing unemployment or incapacity alone or protecting against both
• You can make huge savings when buy from an independent provider
• You can protect unsecured and secured loan repayments and not have to worry about where you will get a substantial amount towards your repayment each month
• Loan insurance means you have the peace of mind that should disaster strike, the policy will help you out financially.