Tips on Loan Payment Protection Insurance

Loan payment protection insurance can provide a real lifeline by ensuring that your repayments on any loan continue to be paid even if you are unable to work because of sickness or an accident or if you should find yourself involuntarily unemployed. Given the uncertainties of the present economic climate, this kind of protection could prove a godsend. Nevertheless, it is important to choose the right kind of loan payment protection insurance and the following tips might guide you in the right direction.

The provider

Payment protection in general has quite rightly gained a good deal of adverse press in recent years, mainly as a result of the direct mis-selling of inappropriate and high-priced policies by a number of high street lenders. Indeed, when you took out your loan, an attempt is almost certain to have been made to sell you the loan payment protection insurance to safeguard it.

Probably the biggest tip, however, should be given at precisely this point – the “point of sale”. Think again when the lender offers you the insurance. You are most likely to find that at least as good and reliable cover can be bought far more cheaply from an independent insurance provider, who does not share the lender’s vested interest in selling one of the company’s own in-house products.

Do you need it?

It might sound like a rather obvious question, but another reason for thinking twice before accepting the lender’s suggestion to cover the loan repayments with an insurance policy, is that you might already enjoy sufficient sick-pay conditions from your employer. In the event of your being off work to recover from an accident or sickness, your employer’s sick-pay arrangements could be sufficiently generous for your income to be maintained. In that case, you could keep up the repayments on your loan.

If that is the case, then you could consider whether you need protect the loan repayments only against the risk of redundancy. This could halve the cost of your loan payment protection insurance.

Eligibility

It might sound like another somewhat obvious point, but it is worth double-checking that you are eligible for the cover being offered. Sadly, quite a few consumers have been mis-sold loan payment protection insurance by over-zealous lenders, even when the customer is clearly ineligible for the benefits covered. The most glaring examples of such mis-selling have been sales to people who are retired, are therefore not eligible, and who will have been left with a completely useless product. It is worth remembering, therefore, that to be eligible for this insurance you need to be between 16 and 65 years of age; in work at the time the insurance is taken out; have been employed for at least six months previously; and are a permanent resident of the UK, Channel Islands or Isle of Man.

Exclusions

Although it is a tip that applies to just about any form of insurance, it is surprising how many buyers of loan payment protection insurance fail to read or adequately understand the exclusions that affect the particular product they have bought – especially where these relate to pre-existing medical conditions. It is important to familiarise yourself with the meaning and implications of all of the exclusions before you buy.

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