When Should You Get Loan Insurance?
What is loan insurance?
Loan insurance is often referred to as PPI, or Payment Protection Insurance. Loan companies will urge you to get this insurance to cover yourself in case you cannot keep up with your repayments due to accident, illness or unemployment. The terms of these loan insurance policies varies from one company to another, and you should check out the policy thoroughly before signing anything.
What are the advantages?
The obvious advantage of loan insurance is that if anything should happen to you that stops you from keeping up with repayments, your loan insurance might be able to help you pay off some of the debt. This gives you peace of mind, knowing that you are covered if the worst should happen. It will cost you a fair amount of money, but if it keeps you covered against possible default if you are taken ill and cannot work, then it is probably worth the money. But is it really that simple?
Problems with loan insurance
Although there are cases when loan insurance is appropriate, there are many cases where you will not be covered by your policy. For example, many self-employed people will never be covered by their policies when they are unemployed, unless their company has completely ceased to trade. The criteria for cover are very strict, and you may find that there is very little in the policy that will apply to you and your circumstances.
Are there alternatives?
There are alternatives to loan insurance, with the main one being not to get the insurance at all. The insurance can add a significant amount onto the loan price without giving you many benefits. However, if you feel that you need cover then look for an independent insurance policy for your loan, which is generally cheaper. Also, you can check your other current insurance policies to make sure that you are not already covered by these policies.
Should anyone get loan insurance?
Although it can be expensive and limited, if you think that loan insurance will give you the peace of mind you want and that the policy will cover your circumstances, then take out a policy. Although many are a waste of money, there are policies that can help you in times of need, and you should look at the policy before accepting or rejecting it. This will help you to get the best deal for your loan, and to make sure you are covered in case you cannot keep up with repayments for some reason.
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