Loan Payment Protection Policies
Loan Payment Protection.
Explaining loan payment protection insurance.
By definition, anyone who is forced to borrow doesn’t have money to waste. It is therefore important to realise that even those who secure a keen rate of interest on a loan can pay over the odds for loan payment protection insurance that comes with it.
In quotes for monthly loan repayments many lenders automatically include an additional amount to reflect the cost of a product called “loan payment protection insurance”.
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This cover will ensure that you are able to meet your loan commitments for up to a year if you are unable to work as a result of sickness, accident or involuntary unemployment.
What’s wrong with that? You might ask. Well the answer is absolutely nothing, as long as you get a suitable deal and its terms are clearly communicated.
But the issue is that most lenders offer notoriously poor value loan payment protection policies and that they conveniently forget to explain that there is nothing to stop borrowers from shopping around for the cover elsewhere.
A solution. Specialist loan payment protection providers can sometimes undercut lenders by a third, meaning that they can save you hundreds, or even thousands, of pounds over the lifetime of the loan.
The specialists are also notable for their ability to provide more generous and flexible terms and conditions. For example, they can usually offer cover that backdates to day one but lenders’ policies commonly don’t pay out until after an initial 60 day excess period.
It is important to realise, however, than even loan payment protection policies sold by the very best specialist providers still have significant exclusions which can make them far less attractive to those who suffer from poor health.
They do not cover medical problems you already have at the time you take out the loan payment protection policy, known as “pre-existing conditions”, or “chronic conditions” - long term illnesses from which there is no realistic chance of you making any significant recovery.
Stress related complaints and bad backs are also excluded unless a consultant actually certifies that they are serious enough to stop you from working.
Furthermore, medical considerations apart, the self-employed should take note of the fact that they will only be covered if they actually cease trading, as opposed to merely experience a lean patch. This could make loan payment protection of questionable value to them.
The majority of healthy employed people are, on the other hand, likely to conclude that they simply cannot afford to be without loan payment protection.
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An unexpected stroke of misfortune like serious illness or redundancy can cause havoc with even the most conservative financial plans, and once you start having to take out further loans to repay existing ones you are on a slippery slope that can ultimately lead to losing your home or even to becoming bankrupt.
Specialist loan payment protection providers can offer loan protection for as little as £4 a month per £100 of monthly loan repayment covered and premiums are not affected by your age, medical history or smoking habits.
It can also be possible to take out the involuntary unemployment and incapacity components separately, for as little as £2.50 a month per £100 of loan repayment covered each. This can be especially useful for someone who decides they need the former but who already enjoys adequate health insurance via the workplace.
Nevertheless, whether you are taking involuntary unemployment cover in isolation or as part of a full-blown loan payment protection policy, it is important to realise that it will not pay out for voluntary redundancy and that it also excludes job losses which policyholders knew to be on the cards at the time their loan payment protection policy started.
Edmund Tirbutt
Freelance Writer and Protection Specialist.
© British Insurance Limited, 2007
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