Do you know what loan payment protection insurance is? In the insurance market there is a branch dedicated to covering the installments of a loan that a certain person may owe: we refer to payment protection insurance for loansThanks to these products, the lender guarantees payment in the event of a series of circumstances. On the other hand, the debtor acquires the peace of mind that his loan will be taken care of and will not have the characteristic problems of a default.However, on some occasions, this type of insurance is unknown and the client (the loan holder) believes that it is covered in any situation. So that this does not happen to you and you can contract a payment protection insurance for loans adapted to your needs, we show you everything you need to know about these products.
What is loan payment protection insurance?
It is common, when applying for a loan, that the bank makes us a study of our repayment capacity. In the event that the loan is approved, it means that, in the face of the entity, there is a certain assurance that we can meet the installments, in any case, throughout the life of the loan , the personal and work situation of the applicant may change. Uncertainty increases the more time elapses between the signing of the loan and the maturity of the loan, to cover the risk that the debtor enters a personal situation in which they cannot meet the loan payments., payment protection insurance for loans is offered. They are complex products, of those that we have to analyze well the coverages and conditions. A payment protection insurance for loans is a contract between an insurance company and a client (holder of a loan) by which the entity takes charge of the installments of said loan if the holder is in a situation that prevents him from paying them or his ability to pay is reduced. These situations covered by the insurance are described in the contract itself.
What coverage does loan payment protection insurance offer?
The coverages, that is, the risks that the insurance covers or the aforementioned situations, can actually be any that the holder negotiates with the insurer and is incorporated into the contract (the so-called insurance policy), if the insurer accepts it. However, the main insurers in the sector offer the following coverage for payment protection insurance:
1st. Unemployment.
In this coverage we must pay attention, since it is probable that the insurance does not cover as coverage for the protection of loan payments cases of voluntary dismissal, appropriate dismissal or situation in which the holder does not have the right to receive unemployment. It also does not cover retirement. This coverage is valid for employed workers and some job stability is usually required (for example, a permanent contract with more than 6 months of antiquity).
2nd. Temporary disability.
Temporary disability is understood to be the situation in which an illness or accident occurs to the holder and is unable to carry out his usual work. Thus, your earning capacity – and therefore repayment of the loan – is compromised. In this case, the payment protection insurance does not cover the cases of pregnancy, childbirth or maternity, as a general rule. Neither are psychological illnesses, such as depression or stress . Of course, illnesses that existed prior to taking out the insurance are not covered in any way. We can also find an exclusion when an accident occurs in the practice of a sport.
3rd. Death.
As long as it is not a suicide or is due to a known disease.
How does insurance cover these circumstances?
As we have been commenting, this type of insurance takes care of the monthly loan installments, although it could also be that it is contracted to cover a percentage of them. Generally, the insured is entitled to pay a fee for every 30 days that they remain in one of the situations just mentioned. There may also be a maximum limit , after which the insurer stops paying the fees. For example, one year of payment of consecutive installments and / or three years when they are alternate (they are usually the limitations established by the sector).
How much can it cost?
It is often said that loan payment protection is one of the most expensive of insurance products . However, it also depends on the coverages, exclusions, payment limits by the insurer, etc. The premium of an insurance with all coverages, which covers 100% of the loan installment and without limitation, will be much higher than when contracts in a more reduced way There are a number of factors that have a strong influence on the calculation of the premium of these insurances:
- The amount of quota that we want to cover.
- The maximum quota limit.
- The term of the loan and the validity of the insurance (normally, the insurance is not contracted for the entire life of the loan, but for a few years ahead).
Payment can be made with a single premium or monthly, this is also an aspect to bear in mind when calculating the premium.
When are these policies useful?
Although they can be contracted for any type of credit, payment protection insurance for loans is especially important in the case of mortgages. Why is it like this? Simply because it is a type of long-term loan and there is a real guarantee at stake (the debtor’s own home) .In analogous situations, in which a loan is for a long term, there is a guarantee at stake or a risk It is true that we can enter a situation that damages our ability to pay (for example, an economic crisis), they acquire prominence.It is essential that the loan holder is aware that the coverage is truly adapted to their situation, in order to payment protection insurance for loans is really useful, for example, to a self-employed person (a self-employed) unemployment coverage will not help you, but it can help you in cases of temporary disability. Adapting the policy, negotiating with the insurer, is the key. WHAT IS WHOLE LIFE INSURANCE AND HOW DOES IT WORKS?
Tips for purchasing loan payment protection insurance
As a general rule, payment protection insurance for loans is offered by the entities themselves when granting a loan , however, it may not be the right product for our needs. The client has other options.Some tips that you should keep in mind when hiring one of these insurances are:
- Check if the insurance is really useful according to your personal situation, amount and repayment term of the loan.
- If the credit institution that grants you the loan imposes it as a requirement, it is a linked product. It is possible to negotiate better conditions for the loan because the risk of default is reduced.
- Compare between existing offers with other companies.
- When contracting this type of insurance, the loan holder must be aware of the coverages, limits, exclusions and other details described in this article. Read the policy well.
- Try to negotiate the conditions to adapt the policy and, in turn, reduce the premium.
- Be careful with the periods of grace and validity of the insurance.
Payment protection insurance for loans are usually products that contain a certain complexity, some people turn to expert professionals who can advise them on this matter.