Loan cover would protect secured and unsecured loan repayments against unemployment and incapacity. If you then became a victim to either of these events you would have an income coming in that would go a substantial way towards you being able to continue meeting your repayments. You could choose to take out cover from both events or take out protection just for unemployment alone or incapacity alone. Some providers will also provide you with an income if you were to have to take care of a close family member if they became incapacitated. This is called carer cover and a generous provider will include it in with payment protection.
How much you have to pay out for your protection would depend on your age, with some provider, the events covered and how much you protect. The amount you choose needs to be agreed by the provider as all will limit this amount. This would then be the income that you get back each month if you were unlucky enough to have to put in a claim. The income would be paid monthly as tax free benefit that could continue for 12 months with some providers offering 24 months of protection. You would need to have suffered from one of the events for a certain period of time. Some providers ask you defer from claiming on your policy until the 30th day while others could ask you wait to claim until the 90th day. Some will also date back your benefit to the first day of you suffering one of the events so this would have to be checked before you take out the cover.
You should ask yourself when comparing the terms of loan cover if you want to wait until day 90 to make a claim. By this time you could have already fell behind on your loan repayments by 3 months and of course this can be a very stressful situation to be in. Therefore you might want to ensure that your provider would payout sooner rather than later. Also bear in mind that if you have the luxury of 24 months of benefit you would expect to pay out more in premiums for the policy. Also weigh up the fact that should you still remain unemployed or incapacitated when the policy reached its term, benefits would stop.
If you were to fall behind on your secured loan repayments and be unable to repay what you owe while maintaining your repayments the lender could take you to court. In this case it is possible that you could lose your home to the lender. Unsecured debts could still see you being taken to court and while your home might be safe you could lose your possessions to bailiffs. Loan cover for a small monthly premium could stop this from happening and brings enormous peace of mind while you recover or search for work.
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