Consider Covering Your Repayments With Loan Insurance

by : Simon Burgess

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.