Loan payment protection insurance can be taken out at the time of borrowing, lenders will in fact try to push the cover with their loans to grab back profits and make up for the cheap loan. Of course this is one of the dearest ways of protecting the money you are borrowing against the fact that you might be unable to work due to an accident or sickness. It would also provide you with an income if you should become unemployed due to redundancy.
So when taking on a loan or credit card always make sure that you choose to cover the borrowing by buying it independently. High street lenders at one point would sometimes add cover onto the borrowing without you being aware of what you were taking on. However for the most part this has changed since the intervention by the Financial Services Authority. It is always worthwhile making sure that it hasn't been added onto the loan you are taking out.
Policies taken with a standalone provider are one of the cheapest ways to protect your borrowing and in order to get the cheapest loan payment protection insurance quote you have to compare with several providers. The premium that is charged for the protection is based on the amount that you wish to cover each month up to a certain amount and your age. Age based insurance makes payment protection products affordable for all. The amount you insure against is what you would receive if you should become incapacitated or unemployed. You can protect not only your loan repayments but also any credit card debts you have. As more and more people turn to using "plastic" to get by, covering your borrowings is essential.
When the policy would payout and for how long would all depend on the provider you chose to go with. Therefore it is essential to read the small print of the policy before taking it out. Some providers will offer a policy that begins paying out a tax-free sum after just 30 days. However some will defer paying out on the policy until you have at least been out of work or unemployed for 90 days. The same applies as to how long the cover would last. There are policies that could payout for 12 months and some providers offer cover lasting up to 24 months. You also have to look at the exclusions as there are some in all policies and how many depends on the provider.
Loan payment protection insurance is valuable as if you cannot maintain your repayments and get behind and into debt then at the very least you would see your credit rating affected. In the worse cases you would be given a County Curt Judgement and bailiffs may be sent to recover what you owed through your belongings. Of course with a loan payment protection plan behind you, you would not have this worry and would be able to continue meeting your repayments. This alone would give you peace of mind and at a time when you need to be concentrating on making a recovery or going out and finding work, it is a lifeline.
In a previous article we presented a simple formula to calculate the amount of a monthly home mortgage loan payment. The formula applies to any compound interest loan. The only special equipment you need is a calculator with a power function key. That's the key with the y superscript x (y ^ x). If you have kids in school you probably already have one.
Here is a review of monthly payment formula.
The variables are: N = loan period in months. i.e. 20 years = 240 months. R = interest rate in whole numbers. i.e. 8% written as 8. P = principal amount of the loan. The amount borrowed. Q = the Q factor. An intermediate calculation. M = monthly payment amount
Here's the entire formula for the monthly payment amount of a compound interest loan:
M = (P * R * Q) / (1200 * (Q -1))
Easy enough, but first you have to calculate the value of Q. Here is the formula:
Q = (1 + R/1200) ^N. Pretty simple, but you do need the power function key. N can get large.
In our earlier example we calculated a monthly payment of $418.22 on a $50,000 second mortgage at 8% for 20 years. You have paid the 2nd mortgage loan for 5 years (60 months). The pay off amount is $43,763 (rounded). This is how to calculate the pay off amount on any compound interest loan after N number of payments.
This is an easy three step process with a subtraction at the end. First calculate the growth value of the loan amount (P). P increases by a factor of (1 + R/1200) per month, so after N months the value of the principal amount of the loan would have inflated to P * (1 + R/1200) ^ N. For the current $50,000 second mortgage the calculation looks like this:
50000 * (1 +8/1200) ^60 = 74492.28 (step one)
The monthly payments have also inflated by a factor of (1 + R/1200) per month so in math talk we have a geometric series with n terms. The monthly payment part is a little more complicated and the formula looks like this:
Now finish up by subtracting the inflated repayment value from the inflated loan amount value to get the pay off amount:
74492.28 - 30729.49 = 43762.79 (pay-off)
Once you know how to calculate the monthly payment and pay-off amount for any compound interest loan on the back of an envelope, you can noodle mortgage and car loan what-ifs from anywhere.
Both Simon Burgess & are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
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.
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