Loan Payment Insurance from British Insurance
Loan payment insurance - also known as loan payment protection insurance to give it its full title – can provide the peace of mind that should you become unable to work due to unemployment or incapacity, you will still receive a monthly income with which to service your loan and credit card repayments.
It is a relatively short-term oriented payment protection that pays benefits to people temporarily displaced from work due to involuntary redundancy, illness, or accident. Benefits are paid over a period of 12 to 24 month period following a covered event and subject to the individual loan cover plan’s small print. For many Brits, this payment cover offers an ability to meet monthly debt obligations when a loss of income occurs.
Loan payment insurance typically does not replace the entire lost income for the insured person, but it does help with a significant portion of it, providing a tax free monthly benefit. As debt from loans and credit cards continue to rise in the UK, Brits are more and more dependent on income to meet creditor obligations. Banks and High Street lenders have long controlled the loan payment insurance market because of their ability to sell it at the time of loan acquisition to borrowers. Recently, however, consumer awareness has heightened, thanks to industry recognition of the benefits of open insurance competition. Independent standalone providers are increasingly being used as a source for low cost insurance.
Loan payment cover is actually one of three common types of payment protection insurance cover. The others include mortgage payment protection insurance (MPPI) and income payment cover. The core benefits of each product are similar, as are the events that are covered. There are some distinctions among them, however, in terms of the purposes and features of each plan type.
Mortgage payment insurance is much like loan payment insurance with the exception that its primary focus is protecting the insured’s most valuable asset. Most Brits would say their home loan is their most important monthly financial obligation. With mortgage payment cover, temporarily displaced workers can still meet their mortgage payment needs despite income loss. As with other types of loan payment plans, mortgage protection is regularly combined with mortgages by banks and lenders. This allows them to increase their profit from each mortgagee.
The third type of payment insurance is income payment protection. It is simply financial assistance in the form of monthly income payments that help offset lost job income. Plans do not typically replace 100 per cent of normal income, but they do generally cover a significant portion of it. This product helps the insured keep up with monthly expenses while dealing with health, injury, or job search stresses.
Income payment cover is sometimes confused with a completely different product with a similar name. Income protection is a longer-term insurance that provides benefits up to the age of retirement for some people, but for incapacity only. It is also more expensive. The confusion stems from the overlap in names and terms used to reference each product. Because of their similar names, discussion of the plans can be tricky. The key is to remember than income payment protection is part of the payment cover portfolio which is intentionally designed for short-term unemployment assistance.
The benefits of payment insurance are becoming clearer to Brits in light of recent developments within the industry. The Citizen’s Advice, the lconsumer advocate group, has recently brought to the attention of the Office of Fair Trading (OFT) some common mis-selling practices used by banks and High Street lenders. It brought a super complaint on behalf of consumers it felt were being overwhelmed by unfair competition.
Much of the charges against banks and lenders related to the practice of combining loan and insurance products. While this practice on its merits is not unethical, many institutions have been pressuring or deceiving borrowers in order to make sales. Some simply use pressure selling to suggest to borrowers that the insurance is required to obtain a loan. Others go farther by building premium costs into the loans without directly discussing it with borrowers. The insurance is merely noted in fine print and spread over the cost of the loan repayment. By spreading out the premiums, lenders can hide just how expensive their insurance really is. Borrowers are often unaware of the premium costs as they assume they are part of the loan repayment expense.
Along with the mis-selling through package selling, some banks and lenders regularly sell the payment insurance products to part time employees, retired people, and people with pre-existing medical conditions. All these groups are in most cases ineligible to receive benefit payouts from the insurance because of its full time employment requirement. Sellers often realise they are selling to ineligible customers.
The OFT, along with the Financial Services Authority (FSA), have conducted investigations into the industry practices. The FSA imposed fines and sanctions to penalize those guilty of mis-selling. The OFT appointed the Competition Commission to further investigate the industry and it is awaiting the results of the research. Because of the increased scrutiny of selling practices, some institutions have already reduced the use of mis-selling. Unfortunately, some online lenders have been making use of the same packaging techniques to increase business.
The good news that has come out of the publicity is that consumers are more aware of the benefits of buying payment protection on the open market from a more reputable standalone insurance provider. They typically have access to the best plans, as well as rates that are 40 to 80 per cent cheaper than those available from banks and High Street lenders.
The State offers very little assistance to temporarily unemployed or incapacitated Brits. It can be said that, generally speaking, the responsibility for financial security during periods of involuntary redundancy, prolonged illness and injury lies solely with individuals.
Loan payment insurance, mortgage payment cover, and income payment insurance all offer excellent value propositions when purchased at the right rates. Independent providers have the reputation of being highly customer-centered and work hard to get the best plans for virtually any individual customer. Obtaining protection quotes is efficient and convenient as well. Thanks to expansion of the internet, low cost loan payment insurance can be purchased through a web site.
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