If you find yourself without an income after becoming unemployed or suffering an accident or an illness then you would be thankful you had considered loan payment protection insurance and taken out a policy. The reason being, you would then have an income to fall back on with which to continue paying your loan repayments along with your credit card repayments. The income you received would be tax-free and enough to allow you to be able to continue meeting the repayments while you look for work or concentrate on making a recovery and getting back to work again.
Loan payment protection insurance works by you taking out the insurance for a premium. If you go with a standalone specialist who offers payment protection this is the cheapest way to get cover. However, when borrowing, the high street lender will try to get you to take out the protection in the loan. Occasionally lenders will add in the cost of the protection over the period you take out the loan for and then add interest on top. This can boost up what was once a cheap loan considerably and in some cases has been known to almost boost up the cost by almost half again. This was high lighted in 2005 when the Office of Fair Trading received a super complaint from the Citizens Advice. Along with high cost little information in some cases was provided which led to those who could not benefit from a policy bought cover.
Standalone providers will take your age and the amount you wish to protect and then give you a quote for the premium for loan payment protection insurance. If you take out a policy that is age based this means you are able to make the biggest savings. The amount that you insure for is the amount you would receive back if and when you had to put a claim in.
Some payment protection specialists will offer a policy that runs for 12 monthly payments and then expires, others could offer 24 monthly payments before expiring. There is always a deferment period before the protection would begin. With some providers this will be 30 days and with others it could be as much as 90 days. Some providers could also backdate the policy to the first day of you becoming unemployed or of being incapacitated.
Loan payment protection insurance should be considered by all who take on borrowing whether they borrow by taking out loans or on credit cards. If you cannot manage to keep up with your repayments then at the very least you will see a decline in your credit rating. If this happens then borrowing in the future becomes very hard. All lenders will look at your credit history and missed payments means there will be a mark on your file. Lenders are reluctant to approve loans if you have defaulted on a previous loan. In the worst case scenario the lender could take you to court and you could have a County Court Judgment against you. Even worse a judge could rule that bailiffs come to your home and take your possessions to sell to repay the lender. All of this could easily be avoided by taking out a policy for a small premium each month.
Simon Burgess is Managing Director of the award-winning British Insurance , a specialist provider of loan payment protection insurance .