Loan Repayment Insurance

Finding cheap loan protection insurance is no mean feat today. Recent Bank of England interest rate increases and the ongoing investigation by the Financial Services Authority into payment protection insurance (PPI) have resulted in high street banks increasing available loan rates. As a direct result of the loan rate rises, loan cover has increased in price, thus making cheap loan protection insurance virtually extinct.

The Bank of England base rate is at its highest level since March 2001 and at the time of writing, (August 2007) currently stands at 5.75%. Whilst this may be good news for savers, it represents decidedly bad news for borrowers. The sub-6% loan rate was all but gone before July 2007, when the interest rate increased, as a result of a dip in high street bank and lender profits, a knock-on effect of the Financial Services Authority investigation into payment protection insurance.

Many lenders had been accused of ripping off consumers by offering poor value products. However, the loan rate increase has since justified even more expensive cover, thus eliminating cheap loan protection insurance for the majority.

However, that is not to say that cheap loan protection insurance is not still available. It is still out there but consumers do have to take the time to shop around in order to find it. Standalone payment protection providers are now providing high street banks and lenders with competition and that may actually serve to reduce costs for the consumer in the future.

Cheap loan protection insurance, when taken out in the form of a standalone policy, can save the consumer a lot of money. Not only is the premium less, but also monthly premium payments make it more affordable over the course of a loan and the independent nature of the cheap loan protection insurance actually protects it from the interest rate that is routinely added to it if the total cost of protection is added onto the loan repayment. In any terms, it makes sense to look at all of the options before settling for a specific provider!

Most people are required to take a loan of some sort or the other, at various points of time in their lives. Most of them are also plagued with the fear of being unable to pay their monthly loan repayments due to some financial crunch. But now they don’t have to feel scared because they can make use of the loan insurance concept that is slowly catching up all over the globe.

Loan insurance is a kind of a protection insurance that you can undertake to safeguard yourself against inability to make monthly loan repayments. It is a form of payment protection insurance that you can undertake to help cover you when you are unable to make your loan repayment due to some kind of an illness or an accident. In most cases, this insurance is taken up to cover home loans, personal loans or even car loans.

Advantages

In case of a personal problem or tragedy, you can be sure that your loan payments will be made, thanks to the insurance on loan coverage you have. People who suffer from sickness, loss of job, accident, death or any other kind of disability, leading to inability to pay the EMI’s on loans taken will benefit greatly from this kind of insurance. With your insurance taking care of your loan monthly repayment, you no longer have to be worried about the pressure being put on your family.

There is an option to undertake joint loan insurance by those who have taken up a joint loan application, giving you and your partner coverage at the same time. This scheme is very effective for partners as there is a constant reassurance that if either of the partner is taken ill or is involved in an accident or passes away, the repayments on the loan will be made on that person’s behalf.

Now the question arises on the types of loans that are covered under the loan insurance. In most cases, an insurance on loan is usually provided for borrowers of home loans. But certain banks are known to provide the insurance on auto loans as well as other personal loans.

Insurance Premium

Like any other kind of insurance, premiums are required to be paid in the case of this type of insurance as well. The amount of premium charged will differ from bank to bank. Very few banks even allow the insurance to be taken without the requirement of a premium to be paid.

The amounts of premiums that are charged on insurance for loans depend upon certain factors such as the age of the insurance holder, the amount of loan being insured, the medical record of the person taking the loan etc. The higher the person’s age, the higher will be the premium. Similarly, a higher loan amount being insured will lead to higher premiums being charged. Also, if the person’ medical records show a good status, a lower premium will be charged on the insurance. A serious ailment or a poor physical record will automatically rise up the premium amount.

A loan payment protection insurance policy is taken out to ensure that if you find yourself without an income due to being made redundant or if you become sick or have an accident that means you are unable to work you would still be able to pay your repayments. These payments can include your loan or credit card outgoings up to so much of your payment each month.

When taking on a loan you are usually offered protection for it. However when adding it onto the cost of the policy, the lender could then add interest on top of it. This means that you are paying interest not only on the amount you want to borrow but also on the protection for the loan. In some cases this can also double the cost of what was once a cheap loan. You will also be paying part of the £4 billion each month that payment protection brings in for the high street lender in profits.

Standalone policies taken from an independent provider will offer the cheapest premiums for your protection. In some cases the amount you are able to save will be as much as 80%. You will also be presented with advice and information which will allow you to decide if loan payment protection is suitable for your circumstances and what the protection entails. Knowing as much about the product you are considering taking on is essential if you are to get the best deal.

Loan payment protection insurance should be considered essential as if you get behind on your loan repayments you will at the least earn yourself a bad mark on your credit rating. Your credit rating is what determines how big a risk you are when it comes to repaying. If you have a bad rating due to missed repayments then it is very unlikely that you will be given any type of credit in the future. In the worst case you could see yourself having to go to court and this could lead to you gaining a County Court Judgment. You could also see the judge sending bailiffs to your home to take your possessions to sell so that the lender can get back what you owe.

It is important to check the terms and conditions of any loan payment protection insurance policy that you are considering taking out as the terms of it will differ depending on the provider. Some providers would add in very few exclusions while others can add in many and these have to be checked against your circumstances if you are to be eligible to make a claim. You also have to check for how long you would have to wait before you would be able to claim and how long the policy would payout. Providers can ask you wait for 30 days before paying out but some can put a deferment period of around 90 days. Some providers will payout on the policy for a period of 12 months while others could offer 24 monthly repayments.

Loan insurance is taken out for a fixed premium each month and would provide you with the income you insured against so that you could continue meeting your loan repayments. The amount you insure against would be what you payout each month for loan repayments, up to a certain amount defined by the provider. Policies cover against unemployment by such as redundancy or if you are unable to work after being involved in an accident or if you should become sick.

The cost of a policy can vary depending on whether you take it with the high street lender or take it with a specialist in payment protection. Even with standalone payment protection specialists you have to compare as the premiums vary considerably. The cheapest premiums could save you up to as much as 80% when compared with the cost of insurance with the high street lender.

Choosing to take out loan insurance from a standalone provider has many other benefits than just saving you on the cost of the premiums. You would have access to the vital information and the key facts which are needed for you to be able to decide if cover is suitable. All loan payment protection will have exclusions in the policy which you need to know about and check. These vary and some providers would add in more than others. Once you had made sure that a policy is suitable you would then be able to relax and concentrate on making a recovery or take the time needed to find work again.

Covering your loan and credit card repayments should be given some thought as getting into debt through failing behind on them has serious consequences. Your credit rating is the first thing that would be affected by missed loan repayments. Your credit file is also what is taken into account by all lenders when you apply for a loan and if yours has a bad mark against it for a missed repayment then you will stand very little chance of getting approval for credit. Depending on what you owe out and how much, the lender could decide to take you to court. This could mean you would have a County Court Judgment against you. All of this could be avoided by paying out an affordable premium each month.

You would have to wait for a certain length of time before putting in your claim on loan insurance; this is usually between the 30th and 90th day of unemployment or of incapacity. You need to check before taking on the cover to see if the policy would be backdated to the first day of you being unable to work or of becoming incapacitated as some providers will do this. Upon commencement of the policy you would then benefit from an income tax-free for between 12 months and 24 months. After this period of time the policy would stop providing your income but usually you would have found work again or have had plenty of time to make a recovery from illness.

Loan protection insurance along with the rest of the payment protection products has caused a great deal of concern in the past. Mis-selling has occurred and some of the names on the high street we thought we could trust were handed out fines during an investigation into the payment protection sector. Is it any wonder that faith in what are actually excellent products when it comes to safeguarding against a loss of income has dropped? However when the product is understood there should be no cause for alarm and the best way to get all the information you need to ensure that the product works is to go with a specialist in payment protection.

To begin with consumers should be aware that they do have the option of shopping around for their loan payment protection. The cover does not have to be taken out alongside the borrowing and the loan or credit card should not depend on you doing so. Lenders offer payment protection with loans but you have to bear in mind that in some cases they are not properly trained to sell payment protection as they specialise in loans.

A specialist on the other hand that only sells payment protection products knows the products inside out. They pass years of experience onto the consumer to help them make a decision regarding the products suitability. Loan protection is just one of a family of products that can help safeguard your monthly outgoings.

Loan protection insurance would supply you with an income that is tax-free after you had been unable to work through suffering an accident or illness. It would also safeguard against the fact that you could become unemployed while paying back your loan. In either case a loss of income could have you struggling to repay each month. If you were recovering from illness or accident you would not want to be worrying about where you could find the money for your loan repayment. You would need to be able to concentrate on making a recovery and getting back to work and loan protection would allow you to do so. If looking for work you would want to be able to concentrate on attending interviews not having to juggle figures and bills around.

Providers will usually offer loan protection that is based on how much you wish to cover each month, up to a certain amount and how old you are when applying for the policy. You then pay the premium each month and if you are unfortunate enough to have to claim on the cover you can do so after a certain amount of days. The amount of time you have to stand before claiming on your loan protection insurance will depend on the provider. Some will provide you with an income after just 30 days of continuous unemployment or incapacity while with others it could be as long as the 90th day. Once the policy has begun to provide you with the income it would then continue to do so for a certain period before it stops. Providers usually offer a policy for either a period of 12 or 24 months.