Questions to Ask Yourself Before Purchasing Loan Insurance
01 May, 2016 / By Jennifer Hamilton
Loan protection insurance is created to aid policyholders through financial support if they are ever unable to support themselves. The need for a payout must be substantial such as because of unemployment or disability. This type of insurance can come in handy to continue your monthly loan payments and protect you from defaulting on your loans if you are unable to make payments yourself. Before you continue with the purchasing of this type of insurance, you must ask yourself a few things to ensure that it is the right financial decision to make. Here are five questions you should ask yourself before purchasing loan protection insurance.
Do You Know Exactly How this Type of Insurance Works?
Before you purchase this kind of insurance its important that you know exactly how it works. Loan protection can help you maintain your monthly debt payment up to a set amount. This type of policy is meant for short-term protection, so it provides coverage between 12 and 24 months depending on the insurer and policy that you choose. If you need coverage for a longer period of time, then this type of policy likely isn’t the best for you. This kind of policy can be used towards car loans, credit cards, and personal loans and is typically for those who are between the ages of 18 and 65 and are currently employed.
Which Type of Loan Insurance is Best For You?
There are two types of loan insurance to choose from, and so it is important that you consider both to find the best one for your financial situation. The first is a standard policy that doesn’t take gender, occupation, smoking habit, or age into consideration. You can decide how much coverage you want with this type of insurance. The second type of insurance is an age-related policy. This kind of insurance takes the amount of coverage and age into consideration.
Can You Afford the Cost of Loan Insurance?
To obtain loan insurance, you must be able to afford the cost of it. The cost of loan insurance depends on where you are located and the type of policy you obtain. Additionally, it depends on the extent of the coverage that you choose. However, in general, loan protection can be quite pricey. If you have a low credit score, then bear in mind that you may have to pay a higher premium. Your premium will likely be higher if you purchase it through a large lender or bank rather than an independent broker.
Are You Obtaining Loan Insurance For the Wrong Reasons?
If you are purchasing this type of loan insurance with the hope that it will lower the interest rates on your loans then think again. Obtaining loan insurance will not necessarily aid in reducing your loans’ interest rates. Be wary of any loan providers who try to claim that obtaining loan insurance will decrease your loan interest as they are merely attempting to get you to buy a policy. In reality, any lowered interest rate will be latched onto the loan insurance so that it gives the illusion that your interest is reduced when the costs were simply transferred to your loan insurance.
Have You Read All of the Loan Insurance’s Exclusions and Clauses?
It is imperative that you review all of the exclusions and limitations of a loan insurance policy before you even considering whether it is right for your situation. Keep in mind that if you are working at a job that has employee benefits then you may not even need loan insurance as your employment may cover it through their disability insurance.