Information about British Loan Insurance
- 22ND SEPTEMBER 2007
Many of us find that from time to time we need to obtain a loan. As with any debt there are repayments to be considered and which must be met. If we are smart we will draw up a budget to make certain that we can afford the repayments and we will probably build in a safety margin. I wonder however how many of us also consider the possibility of loosing our job or being in a position where we are unable to work. It would be nice to think that employment and a continued income are guaranteed but that unfortunately is seldom the case.
Data produced by Munich Re in 2007 showed that a male has a one in four chance of suffering serious illness during their working life and a female one in five. The same data also reported that a male has a one in twelve chance of dying during their working life and a female one in sixteen.
We also live in times where redundancy is a factor of life. There are periods when that word appears to dominate the news. There are very few people who do not know someone or some family member who has been made redundant and perhaps even worse experienced that first hand. Often these things occur because of corporate strategy rather than being the fault of the individual.
British Loan Insurance allows people to protect themselves from parts of most of these risks. No cover is perfect and all insurance has exclusions so we can not refer to cover as being total. No cover is.
British Loan Insurance covers you in case you are unable to work due to accident or sickness or you become involuntarily unemployed. If those events occur, subject always to the policy conditions, then you have cover for your loan repayments for up to a maximum benefit period of 12 months. The cover can also be extended to include life cover so that your loan could be paid off and your dependants protected against that debt if you were to die at a premature time.
First of all what is the price.
The premium rate is based on the level of benefit you select and the level of cover you choose. There are no added premium factors for age, occupation, gender, life style or smoking habits.
The premium rates are set as £x premium per £100 of monthly benefit selected. The premiums rates can be set out as follows,
• Cover for being unable to work due to accident or sickness is a premium rate of £1.90 per month per £100 of monthly benefit selected.
• Cover for being made involuntarily unemployed is a premium rate of £2.90 per month per £100 of monthly benefit selected.
• Combining the above two covers together produces a premium rate of £3.90 per month per £100 of monthly benefit selected.
• Adding life cover as well raises the cost to £4.90 per £100 of monthly benefit selected.
Basic operation.
To get the cover you fill in a short application form usually online. Before completing the form you can get an instant quote to check the premium price involved. The application has to be sent to the insurer and accepted by the underwriter before cover can commence.
The maximum amount of cover you can purchase is £1,500 per month or 75% of your average monthly gross income which ever is the lower figure.
The life cover element will either pay off the benefit of your loan or be equivalent of 50 monthly benefit limits which ever is the lesser amount.
Premiums are collected monthly in advance by direct debit. The policy can be continued up to your 65th birthday or the date when you have paid off the loan amount which ever is the earlier date provided you meet the eligibility requirements and continue to pay the premiums.
If you want to cancel the policy then you can do so by advising the insurer’s administrator in writing. There is no penalty for cancelling the cover but you will not get back the premium you have already paid, however if you cancel within the ‘cooling off period’ (14 days or increased to 30 days if you have also taken life cover) then you will be refunded any premium already collected.
Depending of the cover level you have selected and you meet the eligible claim requirements then you can claim for benefit after 30 days of the valid claim have past. The monthly benefit payments are then calculated from the first day of eligible claim and continue whilst the eligible claim lasts or the maximum benefit period is reached.
What about other similar polices on the market.
There are others who offer this type of cover. Most lenders do. However not all cover is the same or the same price.
First check the premium level. We think your will find that the British Insurance Loan insurance is very competitive however check that out for yourself.
Look at when the benefit is first paid out. Some polices have waiting periods of 60 to 90 days and some will not back date the benefit calculation to the first day of claim.
Your lender will probably offer you some kind of loan protection insurance. Please remember that you should not be under any obligation to purchase the cover offered by your lender and you should shop around to get the best deal for you.
No insurance policy is perfect.
No insurance policy is perfect. Every one has exclusions of some sort and not all policies will fit every person’s situation. Ideally you need to read the policy summary and policy wording. What follows is an explanation of some areas you might want to consider, but this is not an exclusive list. These types of items will apply to most if not all loan protection insurance.
The first thing to consider is that the maximum benefit period is 12 months per claim for accident, illness and involuntary unemployment. Loans can be for much longer periods. So if you have a very serious accident or illness and are left permanently disabled and unable to work then the 12 month benefit period may not be sufficient for your needs. There is an insurance product called income protection which does provide much longer benefit periods. That cover does not include involuntary unemployment and the cover is much more expensive but it might be something you want to consider.
The policy will also have exclusions. The level of cover is good and the exclusions are similar to other loan protection policies, but for some people in certain situations these exclusions can make the cover unattractive. You do not want to buy something that is unsuitable so you should be aware of the possible drawbacks.
The first item is that pre-existing medical conditions (those you knew about or suffered from during the 12 months immediately preceding the policy start date are excluded. This exclusion is then waived if at the time of any claim you had not suffered from that medical condition for the 24 months preceding that claim. ‘Not suffered’ means no symptoms, no treatment and no doctors or specialists consultation. So if your main concern is a pre-existing medication condition then this exclusion may make the policy unattractive.
The involuntary unemployment requirements for the self employed, and there is a wide definition of who is considered as self employed, requires their company to have actually ceased trading due to insolvency of their business and to have declared that to HM Revenue and Customs. So there is no cover simply because the business is going through a lean spell.
For those in normal employment and not working for their own business, there are exclusions. For instance taking voluntary redundancy would not be covered. If the policy has been taken out to cover an existing loan (rather than a new loan) then involuntary unemployment is not covered for the first 90 days of the policy and that includes any involuntary unemployment you learn about or become aware of during that 90 day period. The 90 day exclusion/waiting period is waived if you were insured for loan protection elsewhere during the 3 months immediately prior to this policy starting, you can prove you were insured and you did not have a claim under the previous policy.
Other examples of exclusions are,
• Self injury, suicide, drug or alcohol abuse,
• Normal pregnancy,
• Death occurring within 90 days of the start of the cover,
• Back pain, mental or nervous disorders unless these are supported by specific additional medical evidence,
• Any unemployment you knew about before the policy started and that includes situations where you knew you were or would need to become a carer.
• Unemployment due to your resignation or misconduct.
• Any unemployment that is normal in your line of business or seasonal or typical for your occupation.
Why you might need this type of cover.
If you are taking out a loan then the chances are that you do not have a large amount of savings. Therefore if you do run into problems in respect of loss of income due to an insured event then you may not have the funds to carry you over and the loan might become a burden.
State benefits do exist but they are not always fully available to everyone and also they are not intended to maintain life styles. The level of benefit will depend on your individual circumstances and may only amount to assistance with housing costs and essential living expenses.
Defaulting on a loan or just falling behind with payments will impact on your credit score. If it amounted to a default and the lender had to take legal action then that might result in your being black listed in the future.
If the loan was secured on your home then that might result in the lender seeking action to recover the debt by asking you to sell your home.
Often people with loans find that they are driven to take out further loans to tie them over a period when no income is coming in. That can lead to greater debt which is something not recommended.
Whilst the above may paint a black picture hopefully it will not happen to you. However if you want to purchase some protection against insurable risks then taking out a British loan protection policy may be the answer.
Complaints procedure.
We are authorised and regulated by the Financial Services Authority (FSA). The FSA require us to have a robust and helpful complaints procedure in place in case any of our customers are unhappy with our service. So if you ever feel the need to come to us with a complaint then we will try to resolve the issue as quickly as possible. If we can not resolve the matter and you remain dissatisfied with how we have dealt with your complaint then you may be able to refer the matter to the Financial Ombudsman Service (FOS). The FOS has been set up by the government to hear complaints regarding those in the financial services industry and to give impartial decisions on those complaints. The FOS service is free to you and it does not effect your right to take legal action in court if you do not agree with the FOS decision.
