Loan protection insurance is a type of insurance aimed at providing a soft financial landing if they encounter tough financial times during which they are unable to meet their loan repayment obligations. This can happen to anyone due to a number of factors, such as losing a job or an accident in which the policyholder becomes disabled.
Loan protection insurance provides the cash that the policyholder needs to cover the loan repayments when he/she is not able to find the cash due to the occurrence of the insured risk. This type of insurance may exist in different forms. For example, in the UK they have premium protection insurance, redundancy insurance, unemployment insurance, and accident sickness insurance.
This type of insurance is commonly known as payment protection insurance (PPI) in the U.S. It is usually provided for major loans such as car loans, personal loans, and mortgages. This type of protection insurance offers a short-term financial boost, usually for 1 to 2 years. However, it may vary from one insurance company to another.
Loan protection insurance categories
This type of insurance policies exist under two categories:
- A standard policy that does not consider factors such as occupation, age, gender. It also gives the policyholder the option of choosing the insurance coverage amount. It is usually available through loan providers and has an exclusion duration of 60 days. This type of insurance coverage can be provided for a maximum of 24 months.
- An age-related policy is where the applicant’s age determines the amount that they will pay as monthly premiums for the specific type of coverage they want. This type of coverage is common in the UK. The advantage is that it is cheaper for younger applicants.
The cost of getting loan protection insurance varies based on the type of policy selected or the insurance practices where you live. Your credit score may also be a contributing factor. For example, if your credit history is poor, then you will likely be charged a higher monthly premium.
It is always a great idea to shop around so that you can get different quotes from different insurance companies. You can then use that data to determine which one is best suited for you.