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A Guide to Loan Insurance Can Help You to Have Peace of Mind

Updated on June 2, 2012

Taking a Personal Loan

Most personal loans are given out only after an asset is offered as collateral security. Such secured loans mean that the asset can be taken over by the lender in case of a payment default. There are times when it becomes difficult for you to make the required repayment, especially in situations where there are other emergencies or even loss of a job. In such cases, you will be better served if you have loan insurance.

Loan Insurance Can Help

Loan insurance is also more commonly called payment protection insurance or PPI. It is the best form of protection that you can have during the repayment period of a loan , and allows you to have peace of mind that your secured asset is safe from being taken over by the creditor. A guide to loan insurance will indicate that the cost of such insurance varies depending the balance outstanding of a loan. It can also depend on the type of personal loan insurance that you opt for. These options vary from those covering the death of the person, disability and unemployment. However, once such an insurance policy is taken up, you can be rest assured, that repayments will be made to the extent of the coverage, even if death, medical issues leading to disability or employment do intervene.

Considerations for Loan Insurance

A major consideration while opting for PPI is the cost of such insurance, as this will in the long term increase the cost of your loan. The higher the coverage, the more is the premium that you will have to pay. It is best to take proper advice from financial and other planners, before you decide on the required insurance. It will be wise to make a complete budget of your expected income and expenditure on a long term basis, based on your current situation. This will allow you to judge whether you actually need such insurance, or need to just take care of emergency situations.

One major advantage that can arise from PPI or loan insurance is that it will automatically protect your credit score, as there will be almost no chance of your being in default on payments. Most insurance companies offering such loan insurance policies insist that you be approved for the loan before they are able to offer you a policy. Even so, once you do opt for such insurance, it makes sense to read all the fine print attached to the policy, so that you are sure of all the conditions and especially the exclusions. Ask for a clarification before you sign on the dotted line. It is always better to be prepared than to come across something that can upset all your carefully laid plans at a later stage.

It is quite common for lenders to insist on loan insurance, which does add to the cost of a loan. There are others who will include it with the loan without giving you any option. Ultimately, it is for you as the borrower to decide on the sort of loan conditions that are acceptable to you, and if you are fine with the insurance and have factored it into your loan costs, you will do well to take such loan insurance.


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