People cannot predict nor control what is going to happen in the future. Regardless of how financially stable you are right now, you still can’t be sure of how events can affect you in the long run.
For example, think about what a business would suffer should unfortunate circumstances like the owner falling ill or dying. Will business insurance be enough for the loss of income, the possible repayment of loans, and a halt in operations?
While there is no way to prevent uncertainties from happening, you can mitigate the risks by having enough protection in the form of insurance policies like loan protection insurance.
What is Loan Protection Insurance?
Loan protection insurance, commonly known as payment protection insurance, provides help to policyholders to repay their debts should they lose the ability to pay due to an unfortunate event or economic emergencies. These events may include unemployment, temporary or permanent disability, or death.
Things like these are out of your control and if you are not financially prepared, it would be hard to make your loan payments on time. As a result, you would need to pay higher than you can afford.
As a way to protect yourself in times like these, loan protection insurance is one of the best options to consider as an additional policy in your personal or business insurance.
You can normally purchase this coverage when you obtain home, personal, and car loans. But while securing your future is a wise financial decision, you should first figure out how this insurance works to ascertain whether it is right for you.
How Does Loan Protection Insurance Work?
As mentioned, this type of insurance will pay for your debts up to a predetermined amount. Generally, the policy can provide coverage for one to two years, though this may also depend on the policies of the insurance provider. The proceeds that you will receive can be used to pay for your financial obligations such as credit cards, personal loans, auto loans, and home loans.
To be able to apply, you need to be 18 years old or above and should be working at the time you avail of the policy. Insurance companies can have different qualifications, but in most cases, a purchaser has to be employed or self-employed for a particular period to become eligible.
How Much Does Loan Protection Insurance Cost?
Several factors can affect the cost of insurance. This will either depend on what type of policy that you will choose and/or where you currently reside—nevertheless, expect the policy to be quite pricey. Therefore, you need to find the best providers that are offering discounts or search for reliable independent brokers to guide you through the process.
Aside from that, take note of the difference between when you purchase insurance separately and when you purchase it on the same date you take out your loans. Your creditor can add the cost of your insurance policy to your loan. As a result, you will have to pay higher interest expenses. Practically, it is better to purchase the insurance at a later date to save more money.
What Are The Major Types of Loan Protection Insurance?
Have you ever been in a situation when you carefully planned everything out, only to have something unexpected happen at the last minute? Unfortunately, this scenario is all too common when it comes to finances.
But with the help of insurance programs, you don’t have to bear all the financial risks alone. In connection with that, here are the major types of payment protection insurance that you must know:
Credit Involuntary Unemployment
This type of insurance applies to policyholders who have lost their jobs without fault, such as during a financial fallout of a changing economy that resulted in a massive layoff. As a benefit, the insurance will provide a predetermined maximum number of monthly loan payments.
Though it is not normal to contemplate unfortunate events like this, it is always better to be prepared for anything that might happen. Hence, what you are paying for here is security and peace of mind.
Credit life is a specialized life insurance policy designed to pay off a borrower’s loans when he dies. In this case, the heirs don’t have to pay for the decedent’s outstanding debts because the insurance policy will already cover them.
This is usually in conjunction with a car loan or a line of credit. Sometimes it can be built into a loan, but take note that this particular coverage is not a requirement in a loan. As such, you must see to it that you understand the terms correctly before making a decision. Otherwise, you would have to pay higher monthly payments.
Credit Disability or Accidental and Health
As the name suggests, this type of insurance pays your monthly loan when you become ill or disabled for a certain period. In most cases, the provider can only give the benefit after the waiting period, which is about a month. In some instances, the benefit may be retroactive to the first day of your inability to work.
Credit property insurance protects the policyholders in cases when the property used as collateral is destroyed, lost, damaged. These properties may include vehicles, appliances, furniture, and other household goods.
In addition, this type has two common coverage options for purchasers: the single interest coverage and dual interest coverage. The former only protects the lender’s interest in the property, meanwhile, the latter protects both the lender and borrower’s interest in the property.
What Should You Know Before Filing An Insurance Claim?
The process of filing a claim is simple. Normally, your insurer will just ask for evidence of your loss or disability to work through initial documentation. After that, they would verify the claim by working with you and your lender.
This, however, does not apply to all providers since each of them can have its policies and procedures. For this reason, you have to thoroughly read and understand their policy to avoid problems in the process.
Are There Things To Look Out For Before Buying Loan Protection Insurance?
Buying an insurance policy is a huge investment that would require you to be vigilant and smart. Without properly understanding the exclusions, terms, and conditions, you might end up getting a policy that is not suitable for you.
Being well-informed about the company, the insurance policy itself, and its cost will save you from making a bad decision. Hence, be conscious of what to look out for when trying to choose the best option.
To avoid purchasing the policy that you don’t need at all, print out all the information about it and thoroughly read everything. This information will be provided to you when you ask a company. However, if they refuse to give you a copy, that can in itself be a warning sign. After all, an ethical company would not hesitate to disclose what you needed to know as a client.
Furthermore, focus more on essential details such as the health issues being excluded from coverage, what types of jobs can only receive a payout, and up to what extent would the company cover in the event of loss or disability. This can be a major factor that can help you make an informed decision. After all, policies differ and some don’t fit everyone’s situation.
Frequently Asked Questions
How to determine if loan protection insurance is right for me?
Every type of insurance is a valuable investment in securing your future. It gives you a sense of security and confi dence that whatever happens to your job, your health, or your life in general, you can have something that would protect you financially.
In today’s economy when everything seems to be volatile and unstable, reducing your financial risks should be an utmost priority. In the case of an unfortunate event, you won’t have to worry about your loans anymore with the help of loan protection insurance.
Indeed, there is no doubt that loan protection insurance is a good option for everyone. Nevertheless, you must still be careful in checking the terms and conditions of the policy before you purchase it. Make sure that you understand its clauses and exclusions, so you won’t be taken advantage of.
Is loan protection insurance required to get a loan?
No, most states do not allow the lenders to require borrowers in purchasing the insurance along with taking out loans. However, when you happen to purchase it, you can cancel it anytime that you want. If you notice that it is already built into a loan, you can clarify it with the lender and tell your decision about it.
For you to identify which provider offers the best option, you can opt to buy the loan protection insurance from independent carriers and not from the lender granting the debt. As discussed above, this might result in higher borrowing costs since the lender can add your insurance cost to the total debt.
Can a purchase cancel the coverage?
The answer is yes. The insurance policy can be canceled at the discretion of the borrower. Once you cancel the coverage, you will still be entitled to any paid but unearned premiums. But in some instances when you cancel the coverage during what is called the free look period, you can get a refund of all the premiums paid.
Gaining an extra layer of protection is always important whether in business or personal life. That’s why it is essential to review insurance policies and study on coverage that will most benefit you.
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