Have you ever been given the option of taking out loan protection insurance when you’ve applied for a loan? Loan protection insurance is a type of protection that guarantees that your financial obligations will be met if there is a financial hardship or other situation, such as a job loss or accident.
Loan protection insurance is usually offered on personal and car loans, but many of these policies may come with high premiums that you, as the insured, will be required to pay if you buy it through your lender. You may or may not be able to save by purchasing loan protection insurance through an insurance agent—be sure to shop around first and compare quotes to ensure that you’re getting the best deal possible.
If you’re thinking about investing in loan protection insurance, the first step would be to work out the amount your monthly repayments will be, as you will have the ability to insure up to a specific amount of your payments. The amount that you insure would be the amount that you’d receive monthly if you were to lose your job or become incapacitated and unable to work. These policies take effect after the insured has been incapacitated or unemployed for a certain number of days. Depending on your insurer and the specific terms of your policy, this can range anywhere from 30 days to 2 years. Loan protection insurance is not the same thing as disability insurance, though the two are sometimes purchased together as a bundle.
In addition to covering auto payments and other types of loan payments, there are more specific types of loan protection insurance, including:
Mortgage payment protection
If you’re unable to work or lose your job, this type of loan protection insurance can help you meet your monthly mortgage payments.
Income payment protection
This a higher premium, longer-term policy that sometimes pays benefits up to retirement age for some policyholders and will usually cover incapacity only.