Loan insurance...do you really need it?

We all know that insurance protects us from worst case scenarios of one sort or another. The same is true of Loan Insurance. Loan insurance is often referred to as Payment Protection Insurance or PPI. The primary purpose of PPI is to cover your payments for the original loan if you are unable to make payments due to certain circumstances: such as an accident, illness or involuntary unemployment. So the question is; if your income stopped coming in would you be capable of keeping up with your payment obligations on the loan? Obviously this would depend on your personal financial circumstances and naturally the size of your debt. You may not need PPI if you have sufficient savings to cover your payments during the duration of your unfortunate predicament. Or if your spouse is working, their salary may be sufficient to cover your repayment obligations. However, if you are concerned about how you would bear up under the financial burden if you lost your job, became ill or had an accident...then you should seriously consider taking the cover.

But consider with care!

When you are approved for a loan, chances are you will be offered a Loan Insurance Policy for an added fee. However, PPI coverage can greatly differ from company to company and in fact may not cover your specific situation at all. For example: if you are self employed and find yourself out of work (for whatever reason-except possibly an accident or illness) you may sadly discover that the Unemployment clause disqualifies you from any coverage at all.

The cost of PPI can also vary considerably and the major portion of those companies offering PPI charge very high rates for the cover, frequently up to 25% of the cost of the actual loan being taken out.

Initially the price seems rather small and unintrusive, Even a small loan with the added PPI cost can often significantly increase the cost of the loan, many of the providers of loans just add the cost of the insurance premium to the amount being borrowed, therefore not only are you paying interest on the amount of the loan but also interests on the cost of the PPI. So exactly how does this translate into the bottom line. Just to give you an idea: a 5000 loan beng repaid over 5 years may have an additional 1500 added to it because of the PPI policy. In this way the bankers, mortgage, credit card or finance lenders are capitalizing also on the PPI coverage. Because of this profit, in recent years many were sold PPI by the lenders without consent or even knowledge which has become a major issue in the press and courts (but thats whole different Hubpage).

Although it may not be cheap, with out a doubt there are certain advantages in having loan insurance. First and foremost you can have peace of mind that if something does happen that your payments are covered for one year. In other words you will not have to fear for you or your family of being in financial difficulty or of risking default if you are sick or injured. If this type of security is important to you then loan insurance is probably a good choice for you and yours.

Even though PPI can afford you the peace of mind... which by all means is priceless, You must keep in mind that loan insurance can have extremely limited coverage. In order to successfully make a PPI claim, you must be in permanent employment position when you purchase the policy. Therefore it is useless and a waste of money for retired people, housewives and students  Most PPI policies will not cover you if you are self-employed and become unable to work. It is also standard practice for PPI policies to refuse claims due to any pre-existing conditions that were not revealed at the time of the PPI purchase. The small print for PPI policies often include further exclusions, so make sure you read the terms and conditions carefully before signing up. 

There are other options to loan insurance that are by far cheaper. There is no question that you can usually acquire the same type of insurance loan coverage regardless of your loan provider. You will discover that the price of this type of insurance is in most cases is much lower than the price offered by the insurance company being presented. What's more, some of the clauses within the insurance loan terms may already be covered by other insurance policies you hold. However, if you shop around and are aware or exactly what you need to have covered, then you can find insurance that covers you when you are unable to meet your financial obligations. Don't feel intimidated by your loan, mortgage, credit card or finance lender when accepting your loan. Take the time to shop around and find what fits your needs.

We hope this information has value for you and look forward to any of your comments at the bottom of this page. Cheers