Insuring Against the Unforseen
Why Do We Need Loan Protection Insurance?
The purpose, put as simply as possible, is to ensure that you are not without a safety net in the case of unforeseen financial difficulty. Also known as payment protection insurance, it is primarily applied to major loans like mortgages and car loans. However, those are not necessarily the only types of loans with which this type of policy can be used. The most important question, of course, is whether this type of policy is a worthwhile investment.
A loan protection insurance policy will ensure that you do not lapse in your payments in the event of unforeseen financial difficulties, such as if you become sick or injured or are laid off from your job. Different schemes will have different requirements for when and how they will pay out, but this general principle applies to virtually all of them.
Types of Policy and Where to Buy
Quite a few companies that offer loans for cars, houses and similar major purchases now offer loan protection insurance as well. However, this option will not always be a good financial value. If you decide that this type of protection is a worthwhile purchase, make sure you shop around for the best deal before committing to the first available option. In quite a few cases, an independent company will be able to offer you a significantly better deal. You can also use comparison sites like uSwitch.com where you can compare deals from all of the main providers and find the best policy to suit your purpose.
Read the Small Print
Most loan protection policies will require you to be gainfully employed at the time you take out the policy. Different policies will cover your payments in varying situations and for varying periods of time (12 to 24 months is fairly standard), so make sure you thoroughly understand all details of the policy you are considering before you commit to it. Some policies will also require you to wait for a certain period of time after you become unemployed or incapacitated, such as 30 to 90 days, before you are permitted to file a claim. As with all financial matters, it s vital that you read the small print with particular attention to the exceptions. This effectively means the circumstances under which the policy will not pay out (and there will be a few of those!)
Although basically accomplishing the same purpose, these plans be divided into four separate categories:
Mortgage Payment Protection
As you can probably guess from the name, is designed to cover only your monthly mortgage payment in a financial crisis. This would generally cover you for periods of unemployment and most often will stipulate a minimum period that you must have been contuously employed prior to making a claim
Income Payment Protection
Generally paid out only for some form of incapacity or health related issue and tends to cost more, but lasts for a long time – even up to retirement age. This is an important way of ensuring that you can continue with both your lifestyle and your financial commitments should your earnings capacity be curtailed by health issue
Loan repayment protection can be set up to cover all of your major monthly loan payments, include those for your mortgage and car. Most often these policies will be a requirement of obtaining the finance. Be careful not to get tied into a deal that is offered by your load provider but retain the flexibility to research the market and get the best deal with the right cover to suit your circumstances.
Guaranteed Asset Protection (GAP) Insurance
This is a way of giving yourself peace of mind by covering eventualities that may not be covered by your other policies. These may include some of your more expensive items like for example your car. GAP insurance fully protects these assets for full like-for-like replacement should it be necessary
Don't Lose Your Home in a Crisis
Mortgage Protection Insurance
There are many different variations not just in the types of insurance policy but also the level of cover afforded by policies of the same type. It is always a good idea to give careful thought to just exactly what the level of cover is that you require, and why you need it, before searching for appropriate cover. Compare as many different companies as you can and bear in mind that the cheapest cover may not always be the best and neither for that matter, might the most expensive. Carefully examine the small print for get-out clauses and no our rights regarding cool-off periods during which you can cancel a policy without financial penalty.