Explaining loan payment protection insurance.
- 12TH JUNE 2007
If you are having to borrow money then the chances are that you do not have spare money lying around. That can present two problems.
1. If for any reason you are unable to earn an income due to being unable to work or loosing your job, then you may not have the resources to weather the financial storm.
2. Whilst you could take out loan payment protection insurance to help protect you against that eventuality, you will not want to pay over the odds for such insurance or get a poor deal on the level of cover.
So why not just let your lender arrange the insurance as part of the loan. Well first off they may not be the most competitive cover around. Being good at loans does not automatically make you good at insurance and visa versa. Secondly if insurance is not their first profession they may not have selected the best terms available as regards cover. So by all means look at what they offer but also shop around. After all it is your money you are spending. No lender should insist that you only buy their product.
Most independent people who pride themselves on looking at providers of this type of cover tend to list specialist providers has having the better deals and especially those who trade over the internet where overheads are traditionally lower. Independent comparisons have shown that savings of up to a third in cost can be made.
Check the cover out and see if it offers back to day one cover. All the policies require you to be off work for several days before a claim will be considered. The better policies use a period of 30 consecutive days and on the 31 day the first benefit payment is calculated starting at day one when you were unable to work. The not so good policies can have an excess period of 60 days and the benefit payment may be calculated starting at day 61.
Generally loan payment protection policies provide a monthly benefit if you are unable to work due to accident or sickness or you are unable to work due to involuntary unemployment. The benefit it paid monthly up to a maximum benefit period which is typically 12 months but in a minority of policies can be as long as 24 months.
The premiums can start from as low as £4 premium per month for every £100 of benefit selected per month. Specialist providers will also let you select to purchase accident/sickness cover or unemployment cover separately. When purchased separately the monthly premium can start from £2.5 for every £10 of monthly benefit selected.
The cover is tied to certain loan agreements and certain limitations apply as to how much any one person can insure as benefit.
As with all insurances these policies do have exclusions and you are strongly advised to read the details through to make certain that they are suitable for you.
For example the policies exclude claims arising from previous disabilities (those that existed before the cover start date).
Chronic medical conditions are excluded.
Stress related and back related problems have limitations as to how they must be diagnosed before such claims are accepted.
Unemployment must be involuntary so early retirement, voluntary redundancy and the like are excluded. The self employed are treated differently and their business must cease to trade and be in the process of being wound up.
