Loan cover could help protect the monthly repayments of secured or unsecured loans by providing you with an income in the event you lost your own income to unemployment or incapacity. If you suffered one of these events you could claim on your policy and it would provide the income that you chose to protect, which would be a percentage of your loan repayment. This amount would be agreed by the provider providing it was within their limit and you get this income back tax free each month once the deferment period has passed and for up to the term of the policy.
The deferment period could be 30 days with some providers and with others it might be as long as the 90th day. Therefore you would have to check before taking out your policy. 90 days can be a long time to manage without any money so bear this in mind. Your provider might be generous enough to provide you with 12 month of protection if it is needed but some offer a policy that would continue for up to 24 months so again you do have to check in the small print. You would need to pay out more in premiums if you could rely on insurance for up to 24 months.
If you did not have loan cover to fall back onto you could fall behind on your secured or unsecured loan repayments. If you do fall behind on your secured repayments then you could lose your home in the long run if you miss repayments and cannot catch up on them. Missed payments of unsecured loans might lead to bailiffs coming into the home and this could mean that you lose your belongings. The money from the income would go a long way towards you being able to keep up with your repayments and avoid the stress and worry of arrears.
You could choose to take out loan payment protection to protect against both events if it suited your lifestyle. However you could choose just to insure against redundancy alone if it suited your lifestyle more. Alternatively you might choose just to take out protection for incapacity alone. The events that you choose to protect would be taken into account towards how much you would pay for your policy. You could also check with the provider to find out if they would pay out if you had to stop working due to looking after a family member who had become incapacitated.
You would need to check your loan cover to find out if you would be able to make a claim before you take out your policy. There will be at least the most common of exclusions in your policy such as having to be in full time work and having been so for a period of time at the time of taking out the policy.
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