Mortgage, Loans, Insurance, Real Estate, Investment, Tax and Financial Services

Loan Protection Explained

Mis-selling of loan protection has occurred in the past and one of the biggest factors that contributed to this is poor information given when the policy was sold. The main culprits have been high street lenders that have poor selling techniques, with little or no training when it comes to selling. While the high street lender can give a good deal on a loan, they cannot give the cheapest quotes for protection. It has been revealed that they make ?4 billion in profits when selling high cost insurance alongside a cheap loan.

Many individuals are under the impression that they have to take out protection insurance offered by the lender in order to be able to borrow. This is not true; all individuals can shop around for a policy. In fact, this is the cheapest way to take out what could be valuable protection. It is also one of the safest ways when it comes to getting the information needed to determine whether a policy would be suitable. There are exclusions which mean that loan payment protection is not suitable for all. Being of retirement age, working for yourself, having an ongoing illness or not being in full-time work could all mean a policy would not be suitable. You do have to go over the wording of the terms and conditions carefully. Those who are self-employed could still benefit from taking out a policy if they were to cease trading altogether due to reasons which were no fault of their own. In addition, if the pre-existing medical condition had not resurfaced within the past two years then those suffering an illness could benefit from a policy. Providers can also add in other conditions and these can vary from provider to provider, so along with comparing the cost of the insurance you should also compare the small print.

Providing protection for a loan is suitable and you have checked it out thoroughly then getting the cheapest policy is the next step. It is important to remember that by shopping around and getting several quotes you can save as much as 80% on the premiums. A specialist offers the cheapest premiums, which are based on the amount you wish to cover each month and your age. Loan cover will be offered when borrowing and while it might be the easiest option just to have cover added on, it can also be very expensive. In some cases lenders have been known to work out the full cost of the insurance for the term of the loan. They then add this onto the cost of the borrowing and then calculate the interest with loan cover on top. When combined this way your protection policy could almost double the cost of what was once a cheap loan.

Loan protection polices do vary when it comes to paying out. The majority of policies will begin to provide the policy holder with a tax-free income once they have been unable to work for between 30 to 90 days. If you were to remain incapacitated then the income would continue for between 12 to 24 months, depending on the terms and conditions of the provider. However, this payment of course depends on the policy being suitable for your circumstances in the first place.

Simon Burgess is Managing Director of the award-winning British Insurance (http://www.britishinsurance.com), a specialist provider of low cost income payment protection insurance (PPI), mortgage payment protection insurance (MPPI) and loan payment protection insurance.

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