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What is a Loan Repayments Protection Insurance Policy and how does it work?

A loan payment protection policy can provide a financial lifeline in the event that you lose your income due to being unable to work due to prolonged sickness, accident or because of involuntary unemployment. How it works is that should you suddenly become unable to work due to one of the aforementioned events, the loan payment protection insurance will step in and provide a generally tax free monthly sum that can be used to maintain your loan repayments. This takes away a lot of the financial stress you will no doubt be feeling at the time.

How do I claim?

You can usually make a claim on your loan insurance policy anywhere from 30 days to 90 days after you are unable to work, subject to the individual providers’ policy features and benefits. Some insurers will also back pay you to the very first day that you became incapacitated or unemployed, so look out for this additional benefit when shopping around for your cover. Once you have made a successful claim, the loan payment protection insurance policy will pay out the cash amount typically anywhere from twelve to twenty four months, or when you are back at work, whatever event happens first (please check with your provider). This gives you the comfort of knowing that you have some income to help with your loan repayments at a difficult financial time, meaning you hopefully should not fall in to arrears with payments. Another valuable benefit of maintaining your repayments this is that your credit report will remain unaffected and so any future borrowing hopefully should not be jeopardised.

What about the cost?

Loan payment protection insurance is often sold at the time of taking out any borrowing but this is usually the most expensive way to buy this, what can be very vital, cover. Buying the insurance this way is not compulsory (despite what a lender may lead you to believe) and you are free to buy the cover as a standalone policy – or even not at all. The best way to shop around for a standalone loan protection policy is via the independent providers who can often provide a low cost solution that meets your income protection needs.

Considerations when choosing your cover

As mentioned before, providers can offer different policy terms and features so when comparing policies, always do so on a like for like basis.

When comparing cover, do ensure you check out:

• How long you will have to wait before you can make a clam;
• Is the claim back dated to the first day of unemployment or incapacity?
• How long will it run for?
• Any exclusions you need to be aware of that would prevent you from making a claim (such as you being in part time employment only, of retirement age, or suffering from a pre-existing medical condition)?

The cost

While there are just the basic things you need to consider when buying a loan payment protection insurance policy, do always read the small print before you sign on the dotted line. This way you can ensure that you have the right policy and at the right price.