Loan payment protection insurance
Loan Insurance from British Insurance
Loan insurance is a short-term oriented insurance product that is part of the payment protection insurance portfolio. Loan payment protection insurance, as it is often referred to, is a temporary unemployment and incapacity protection that pays benefits over 12 to 24 months to insured people displaced by involuntary redundancy, accident, or illness. Commonly sold in combination with loan products, loan insurance is intended to help people meet their monthly debt obligations in the event of temporary job loss or an inability to work.
Loan insurance does not fully replace lost income, but it does cover a significant portion of it. Loan payment protection is extremely important for many Brits relying on debt or credit cards for expenses. Repaying debt obligations is important to financial health and loan insurance helps temporarily unemployed workers keep up with the demands. Some loan payment plans also provide a slight provision to cover some monthly expenses faced by the out of work employee.
Loan insurance is similar in nature to the other two common payment protection products. Along with mortgage payment insurance and income payment cover, loan payment insurance is short-term in nature. All three of the payment insurance covers offer the same core benefits and covered events, but there are some modest differences in their purposes and features.
Mortgage payment insurance, similar to loan insurance, is often sold in combination with mortgage products. This is a practice that has actually led to some mis-selling tactics that have drawn the attention of consumer advocate groups. Mortgage payment protection insurance (MPPI) is designed to help covered people meet their most important monthly debt obligation. Home loan repayment is essentially to protecting homeowners’ most valued asset. Mortgage payment cover does not replace full income either, but it does help meet the monthly mortgage demands during short-term unemployment stints for covered people.
The third common form of payment insurance is income payment protection. This is a fairly simple product to understand as it offers a basic monthly payment of income to the covered person. Again, the insurance income payment is typically not as much as the normal income for the insured, but it does replace a significant portion of it. For many people, this insurance support is vital to meet monthly expense requirements during displacement.
Income payment protection insurance cover is commonly confused with income protection. The products are completely different, but the confusion comes from common use of names and terms. Income protection is more of a long-term product with a higher premium. It sometimes leads to benefit payments up to retirement if the insured becomes unable to work. Income payment protection, as part of the payment protection portfolio is short-term oriented.
Consumers have long been unfamiliar with the benefits of payment cover. Many are even unaware whether they have the protection. The major reason for this consumer uncertainty relates to the fact that banks and High Street lenders have long controlled the payment insurance industry. As mentioned, much of the payment cover bought by consumers takes place at the point of loan acquisition.
The packaging of loans and insurance has come under fire recently because several seller have used pressure or deception to sell the insurance. Some lenders manipulate borrowers into believing they must buy the insurance to get the loan they want. A few lenders even go farther by deceiving loan customers into paying insurance premiums. Lenders simply build the insurance premium costs into the loan repayment. This allows them to hide the expense of the premium by spreading it out over the loan repayment. Many unwitting borrowers pay thousands in payment protection and are not even aware they have the coverage, or what it can do for them.
Perhaps the most unethical selling of payment protection and loan insurance takes place when sellers target retired people, part time employees, and people with preexisting medical conditions, all of whom are ineligible to receive benefits from the insurance. Many sellers package products with these consumers in spite of their knowledge that the buyers are not protected by the plan guidelines.
Recently, the Citizen’s Advice, a leading consumer group, brought all these mis-selling allegations to the attention of the Office of Fair Trading (OFT) through a super complaint. As a result, the OFT and the Financial Services Authority (FSA) each conducted investigations in the industry. The FSA imposed fines and sanctions against many banks and High Street lenders to penalise those it felt had competed unfairly. This has already helped deter some of the behavior. The OFT appointed the Competition Commission to perform more research, which could culminate in additional actions within the industry.
As consumers have become more educated on selling tactics, they have also become more aware of the benefits of payment protection and the competitive advantages offered by stand alone insurance brokers. Brokers specialize in insurance and have relationships with most of the leading providers in the industry. This gives them access to most of the best payment protection plans as well as the lowest rates. Broker payment insurance is usually offered at a 40 to 80 per cent discount off banks and High Street lender rates. Brokers also have a more ethical reputation and are perceived as offering better customer service. Most brokers belong to one or more insurance industry associations which maintain strict standards and codes of business conduct. Obtaining a broker quote is very convenient in the current market because of the expansion of the internet.
Consumers are recognising that they are on their own as far as payment protection goes. The State has largely withdrawn from any involvement in unemployment assistance, with stiff criteria needing to be met and relatively small financial assistance given should you qualify for help. The good news is that with the advanced opportunities for fair competition through independent brokers, great values can be found for loan insurance. Loan payment protection insurance, mortgage payment cover, and income payment insurance all offer security and financial support to full time employees temporarily out of work. The challenge of dealing with involuntary redundancy, health issues, and injury are stressful. The financial burden of not having the benefits of payment protection can make the situation even more overwhelming. It is up to Brits to take action to protect themselves and their families.
