Loan Insurance

What is loan insurance?

Very simply, loan insurance is any type of insurance policy which is used to provide some form of protection for a loan. It can be taken out by the applicant to cover themselves for various scenarios, either on a single or joint life basis. The policy does not always need to be specifically tied in with the loan in question and often individual's already have policies in place which could be used to protect a loan. Most lenders are able to provide advice on whether cover is required and what is the most appropriate type of plan to meet an individual's needs. Alternatively it is possible to take independent financial advice, which could give a more comprehensive choice of cover from a wider range of providers.

What different types of cover are available?

There are various types of cover available to protect a loan. The most common type is Payment Protection Insurance (PPI). This provides a regular monthly payment equivalent to the monthly repayment amount of the loan and becomes payable in the event of one, or all, of the following: accident, sickness and unemployment of the policyholder. The payments are usually made for a maximum of one or two years on PPI. An alternative type of cover is a full income protection policy, or Permanent Health Insurance (PHI), which protects the policyholder against long term sickness or disability and is based on the individual's salary rather than just the loan payments. This type of cover will usually pay out for a longer period, often up until retirement age if required, however it is often more expensive than PPI.

Other policies include life insurance. This will pay out either a lump sum or a regular income in the event of the death of the policyholder and can be taken on a single, or joint life basis. In addition to life cover only, it is possible to include critical illness cover within the policy. This provides the same benefits as the main plan, but will pay out on diagnosis of a critical illness, the details of which will be outlined in the policy literature.

How much will it cost?

The cost of loan insurance can vary greatly and depends on several factors such as, the type of cover required, the size of the loan or monthly repayments, the term of the plan, the age of the applicant(s), the health of the applicant and whether or not they are smokers. Quotations and illustrations will be provided by the adviser for any policy recommended based on the individual's specific circumstances. It is worth shopping around for cover, or taking independent advice and it is very important to read and understand all the small print to ensure that the cover is actually what you need. Finally, remember that cheapest is not always the best!

Do I really need this cover?

Many people feel that they do not require any insurance to protect their loans and therefore decline any form of protection. This decision is usually based on the additional cost incurred with this type of insurance, or the attitude of “it won't happen to me”. This is clearly a rather blinkered view and some type of loan protection should certainly be considered as part of the cost of taking a loan out. The implications of not having cover in the event of something happening to you could range from simply struggling to meet payments, or getting a bad credit rating, all the way through to the possibility of having your home repossessed, or passing your debts on to loved ones after your death. Loan protection is there to provide security and peace of mind at a time when you need it most and should therefore be treated as a high priority when applying for any type of credit.

N/b Please note that any information found within this loan insurance document should not be construed as professional financial advice, and should not be used as a basis for your decision to purchase any form of loan insurance either now, or at any point within the future.