Anyone who has taken out a loan or arranged the issue of a credit card is almost certainly to have been offered some form of loan cover. But this popular form of payment protection insurance has come in for such heated debate and criticism of late that it can sometimes be difficult to know whether you have the right policy for your own personal circumstances or, more particularly perhaps, whether you are paying the most competitive price for it.
Thanks to the huge profits that appeared to be theirs for the taking, banks, building societies and other financial companies for a long time pushed sales of payment protection insurance so hard that currently some 20 million policies are estimated to exist in Britain (according to a report in the daily Telegraph newspaper on the 6th of February 2009). The report continues that so little care was taken over many such sales, however, that an estimated two million (one in ten) will have been to individuals who could never make a claim under the policy (because they are already retired, for example, or have a pre-existing medical condition).
Following a rigorous investigation of this sector of the insurance industry, measures are now in place to rein in the worst of the mis-selling practices and consumers should be in a better position to know what the loan cover they are buying will actually do. Comparing the costs of various policies, however, can still be somewhat confusing.
All types of loan cover will generally protect the policy holder against the principal risks of accident, illness and unemployment, paying out insured benefits in such events in order to ensure that loan repayments can be maintained. However, policies will invariably incorporate a form of excess in the shape of a waiting or “qualifying period” – being the minimum period for which the policy holder needs to be off work or out of work before a claim can be made. This period can vary from between 30 days to up to 180 days. Clearly, this makes a considerable difference to when the cover will start paying out and the shorter the qualifying period, the more expensive the premiums are likely to be. The balance between the excess (the length of the qualifying period) and the price of the monthly premiums, therefore, needs to be taken into account when comparing policies.
In addition, there will be the difference between those policies that treat the qualifying period as a genuine form of excess, leaving the policy holder to shoulder the burden of any financial loss during that period, and those that, at the end of the relevant qualifying period, then backdate benefit payments to the first day off work or out of work. Once again, those that backdate benefit payments are likely to prove more attractive, but might attract higher premiums.
Finally, it is important to consider the maximum period during which benefits will be paid. The typical maximum for most forms of loan cover is 12 months (unless, of course, it is possible to resume normal working before that time), but some policies offer the option of extending that period to up to 24 months, on the payment of an additional premium.
Related Posts