Explaining loan protection insurance cover
- 20TH JUNE 2007
Times have certainly changed since comedian Bob Hope famously quipped that “A bank is a place that will lend you money if you can prove that you don’t need it.”
It has never been easier for those with limited assets to borrow to help to realise materialistic goals that would have otherwise remained merely dreams. Banks will commonly grant personal loans of up to £15,000 without requiring any security, and it can be possible for those taking out mortgages to borrow up to five times their salaries.
But the world is so overflowing with invitations to obtain instant credit that it is easy to forget that any money borrowed must eventually be repaid. Such a realisation may not be too daunting for those who work on the assumption that they will always enjoy the prop of a regular income, but life isn’t guaranteed to be quite so straightforward.
Being unexpectedly made redundant or diagnosed with serious health problems can happen to virtually anyone, however indispensable they feel at work or whatever degree of attention they pay to diet and exercise.
For this reason it is strongly advisable to consider the merits of loan protection insurance, which will typically take care of your monthly loan repayments for up to 12 months if you are unable to work as result of accident, sickness or involuntary unemployment.
But some loan protection insurance policies are much better value than others. No-one who needs to take out a loan has money to waste, so it is essential to shop around for the best loan protection insurance deal.
It is especially important to be aware that there is no compulsion to buy loan protection insurance from the same organisation that is granting you the loan.
Indeed, you are likely to save hundreds, or even thousands, of pounds over the loan period by buying from an independent specialist loan protection insurance provider.
Banks and finance houses are notoriously uncompetitive for loan protection insurance and often fail to make it clear that you are entitled to look elsewhere. Indeed many automatically include the costs of loan protection insurance premiums in your quote for your monthly loan repayments.
Lenders’ loan protection insurance policies also tend to have less generous terms and conditions than those of the independent specialists. For example, they often don’t pay out until after a 60 day excess period, whereas policies offered by the better specialists pay out after 30 days and backdate payments to day one.
Nevertheless, even loan protection insurance offered by the very best specialist providers still has downsides that must receive due consideration.
In particular, they do not cover medical problems that you already have when you take out the loan protection insurance policy (so called ‘pre-existing conditions’). The self-employed are not covered for involuntary unemployment unless they actually cease trading, and even employed policyholders are not covered for voluntary redundancy.
Such exclusions could make even the best value loan protection insurance seem unattractive to a significant minority. Most people, on the other hand, are likely to conclude that they can’t afford to be without it.
