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Basics Of Loan Payment Protection
by Simon Burgess
Not understanding loan payment protection is the number one fault associated with
mis-selling. Providing cover is suitable then taking out a policy to cover your loan
repayments can save you from getting into debt and give you peace of mind and the
security of an income each month. This income is used to cover your loan or credit
card repayments and is tax free.
Loan insurance premiums can vary a lot and the cheapest way to take out a policy is
to go with a standalone specialist provider. By choosing to buy cover after taking out
the loan you will not feel as though you are getting pushed into the cover and you will
be able to take your time going over the terms and conditions. An independent provider
will always make this information available.
A policy could start to pay out if the policy holder was out of work due to an accident
or illness, or through unemployment such as redundancy. The policy holder waits a period
of time before receiving a payout, which usually comes 30 to 90 days after being out of
work continually. The policy pays out a tax-free income for up to 12 months, or for up
to 24 months with some providers, which is usually enough time to recover and get back
to work.
You do have to make sure that a policy would be suitable for your circumstances before
you buy. This is due to there being terms and conditions that can stop you from claiming.
The exclusions most regularly found include being retired or self-employed, suffering an
illness or only working on a part-time basis. But these exclusions are not set in stone;
for example, providing the illness has not occurred within the last two years then cover
might be suitable.
Beware of borrowing online and if you do pay attention to whether loan protection cover
is already included. Online lenders have in the past included loan protection as standard
unless a box is un-ticked. While the majority of lenders have now put an end to this to
avoid confusion, it is worthwhile double checking. The same goes when taking out a loan
with the high street lenders, because they have also been known to add in the cover and
then add interest onto the total amount. This, of course, can almost double the cost of
what was a cheap loan and is the most expensive way of purchasing peace of mind.
When buying a protection policy for your loan make sure you know whether you will pay a
single premium or regular one. If you pay a single premium then lenders will charge
around three years’ premiums upfront, which you are expected to pay in one lump sum.
You also need to pay attention to any clauses relating to early repayment of the loan.
Always check to make sure what you would be able to claim back if you should take the
loan out then find out you can afford to repay it early.
While loan payment protection can work and give you a much needed income it does only
pay out for a maximum amount of time. While in the majority of cases the individual
will return to work within this period, occasionally they remain unable to work for
a longer period. Therefore, you must consider how you would be able to maintain the
repayments if you should remain off work once the cover stopped providing an income.
About The Author
Simon Burgess is Managing Director of the award-winning British Insurance
(http://www.britishinsurance.com), a specialist provider of low cost income
payment protection insurance (PPI), mortgage payment protection insurance (MPPI) and
loan payment protection insurance.
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