Many people are in doubt whether they need loan protection insurance and they have every right to feel indecisive. Namely, the concept is not great for everyone. Though it was designed to help policyholders by providing financial support in times of need, it still has its disadvantages. To help you decide whether you should opt for one, we’ve prepared the following list of things to consider when making a decision regarding loan protection insurance.
How does Loan Protection Insurance work?
This type of insurance can help you meet your monthly debts up to a predetermined amount, offering short-term protection, providing coverage from 12 to 24 months in most cases. You can use it to pay off personal loans, car loans, or credit cards. These policies are normally for people between 18 and 65, employed at the time the policy is purchased. A standard policy disregards the age, gender, occupation, and smoking habits of the policyholder, who can choose the amount of coverage they want. On the other hand, there is an age-related policy offered in Britain, for which the price is determined by the age and amount of coverage the policyholder wants to have. The maximum coverage is for 12 months.
Pros and cons
It’s great to be able to select a loan protection policy that is cheap and provides coverage suitable to you. Also, having a loan insurance policy helps maintain your credit score, because the policy allows you to keep up-to-date with loan payments.
On the other hand, having this type of insurance does not necessarily help lower loan interest rates. When you shop for a policy, you might be tricked into accepting some policies that are not right for you. One of such cases has led to the current Westpac class action, following the sale of worthless consumer credit insurances with a Westpac credit card, a flexi loan, or a personal loan. Customers were led to make payments believing they either had to or that such payments would provide value and proceedings are currently in progress to resolve the matter. The bottom line is that you need to be very careful when choosing such a policy.
How much does it cost?
This largely depends on where you live, the type of policy you choose, and how much coverage you would like to have, but we have to say that it can be very expensive, especially if you have a poor credit history.
Premiums through large banks are typically more expensive and the vast majority of policies are sold when a loan is taken out. You have the option to buy the insurance separately at a later date, which can save you hundreds of dollars. When buying a policy with a mortgage, credit card, or any other type of loan, a lender can add the cost of the insurance to the loan and then charge interest on both, which could potentially double the cost of borrowing, so you should be careful about it. Opt for the policy that best meets your needs and current situation.
What should you look for?
To begin with, you should first review all provisions stated in a policy and make sure you qualify for submitting claims because you don’t want to be unable to do so if/when the unexpected occurs. Also, understand which health-related issues are excluded from coverage. For example, because diseases are being diagnosed earlier, illnesses such as cancer, heart attack, and stroke might not serve as a claim for the policyholder because they are not considered as critical as before.
Logically, you need to carefully read and understand all terms and conditions, as well as exclusions of the policy before committing yourself. The best thing is to opt for a renowned company to minimize the chances of ending up with the wrong policy. Next, make sure your policy suits your financial situation. See why might need it, if you have other emergency sources of income from savings or some other sources and go through all exclusions and clauses to be able to make an informed decision.
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