Payment protection insurance is usually offered to every borrower today when they apply for a loan. In the case of taking out a particularly large loan, the idea may seem very attractive. This form of insurance can help protect your family from debt when you lose your job or experience a medical emergency. These insurance policies will take over your loan repayments, so you have less to worry about while you get back on your feet. However, what are the real costs and benefits associated with this type of approach?
The Cost Of Loan Payment Insurance
Lending is becoming increasingly competitive in recent years due to increased competition from other industries. Lenders have been seeking ways to increase their returns as interest rates continue to drop. Their solution is to offer a variety of additional products, such as payment protection insurance, that accompany the loan.
It may come as a surprise that payment protection can often be as expensive as loan interest payments. Repayments for payment protection can be so high that they practically double the loan’s cost. Due to such startling consequences, it is imperative that consumers think carefully before choosing such options.
Is it worth it?
Considering that lives and jobs are becoming more and more unstable, many people will view such policies as worth the price of providing peace of mind. In today’s economy that can go pretty far in helping to handle each day.
While every insurance policy is different, one thing remains the same: it is extremely difficult to get an insurance policy to payout. When you carefully read the fine print of your policy, you may be surprised at what is actually covered, and what exclusions and exceptions apply.
For example, unemployment benefits may not kick in until a certain period of unemployment has passed, won’t count if the unemployment was voluntary, and may require proof that the applicant has actively sought employment since losing their job. Just like with unemployment your loan payment insurance can look for reasons to not pay.
The benefits of loan payment protection
Things are crazy right now and jobs could shut down again at any moment. this means those preparing to take out a big loan for something be it a home improvement, a car, or medical expenses should consider loan payment insurance as a means of backup should things close down again. This insurance would allow you time to wait out the shutdowns without worrying about how you will pay your loan and leaving more money for other expenses.
Debt protection. Loan payment insurance is a great way to protect your family from falling into debt that they can’t get past. Not making payments because you don’t have the funds can easily lower your credit score and make it hard to move past debt and avoid problems like bankruptcy.
You should shop around to find the best deal. When borrowing money, you will always be offered a policy by the person lending you money, but it may not be the best option out there, so shop around for a better deal. There is also a good chance that you will find terms that suit your needs better.
In spite of government standards to ensure these policies are clear and in plain language, consumer protection groups continue to receive complaints about them. Always read the contract and check reviews online.
If you are opting for expensive insurance policies, you need to be very careful. If you don’t want the policy, just say no. Know what the terms are, and consider whether they might benefit you.