If you have loan outgoings to keep up with each month you could struggle to continue paying them if you lost your income. You could of course rely on savings, however if you were to be unemployed or incapacitated for any length of time those savings could run out. You could also apply for State benefit, but you have to be eligible to claim and even then the income you got might not be enough to pay your loan repayments. Loan insurance however can be taken for a small premium that is payable each month and this would allow you to cover your repayments and receive this income.
Policies begin to payout for a certain amount of time after you have become incapacitated or unemployed. The majority of providers will offer cover that continues for a period of 12 months, however some providers might offer a policy that would continue for up to 24 months. Some ask that you wait for up to 30 days and others ask a period of 90 days of waiting to put in your claim. During this time you would not have to worry about where you would find the money to continue meeting your commitments. You would have the money in the bank to fall back on which means you are able to concentrate on finding a suitable job that pays the salary you are accustomed to getting. If you are unfit for work it would then allow you to concentrate on making a recovery.
Loan insurance has suffered from a bad history due to the fact that the Financial Services Authority highlighted mis-selling in 2005. It was found that cover had been sold to individuals that could not possibly hope to claim on their policy. This included those who were retired or who only worked part time. Often there had been no or little information given at the time of selling the cover and essential information about what the cover can and cannot do was not mentioned. All payment protection comes with exclusions and it is essential that these are checked against your circumstances if you are to be sure that a policy is suitable. You also have to compare the small print of the policy as some providers will add in more exclusions that others.
While some changes for the better have been seen in the selling of loan insurance there is still more needs to be done. High street lenders still have a stranglehold over the sector and many consumers are still not aware that they can choose to shop around and compare protection. The high street lenders will not make the consumer aware of their options for taking a policy because by adding in protection alongside their loan they bring in ?4 billion each year in profits. Never be conned into believing that the borrowing depends on you covering it with the protection offered, you always have a choice of whether you wish to protect it or not and to choose to buy your policy independently of the loan.
Taking on credit in any form whether it is by way of a loan or spending on credit cards means that you are in debt until you have repaid in full. While you are working everything might be going smoothly, unless you get too far into debt, however if you were to lose your income problems arise if you cannot continue repaying. A loan insurance policy can be taken out to protect your repayments and this would allow you to continue paying if you fall ill, suffer an accident or should become unemployed.
If you cannot maintain the repayments then at the very least you will see your credit rating affected. You will get a bad mark on your credit file for being a none payer and this means that anytime you go for a loan in the future you could be turned down. Your credit rating is the first thing that all lenders will look at and if yours is bad then you can expect to pay a higher rate of interest even if you manage to get a loan.
Loan insurance has in the past caused much concern after it was brought to light in 2005 that mis-selling of cover had occurred. The mis-selling ranged from selling policies to those who stood no chance of being able to claim on them to failing to give essential advice. The cost of payment protection with lenders on the high street can work out expensive. Many people believe that just because they got a low rate of interest for the loan then they will also get the best deal on the cost of insuring the repayments. This in the majority of circumstances is not the case. Often when taking protection with the high street lender they will calculate the cost of insurance on the full term of the loan and then add interest on top. This means you pay not only interest on the amount you are borrowing but also on the protection for the loan as well.
If you choose to buy loan payment protection independently you will be given a quote for protection which is based on your age and the amount you wish to cover each month up to a certain amount. You would then pay the premium and if you should find yourself unable to work or become unemployed you would then begin to receive an income tax-free. You would have to wait for a period of time before the policy would begin to pay out. Usually this is between days 30 and 90, however some providers will backdate your policy to the first day of you being unemployed or of being unfit for work. All ethical providers will supply you with the key facts regarding their loan insurance polices. This is where you can find out when cover begins and ends and also what exclusions there are in the protection policy. All policies come with some exclusions but they differ, with some providers adding in more than others.
Simon Burgess has sinced written about articles on various topics from Mortgage Insurance, Finances and Income Protection Insurance. Simon Burgess is Managing Director of the award-winning , a specialist provider of. Simon Burgess's top article generates over 74000 views. to your Favourites.