Personal Loan Protection Insurance

When Thinking of Getting One What You Should Know?
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Written by Brian Greenberg
CEO / Founder & Licensed Insurance Agent

Last updated: July 19th, 2022

Reviewed by Grant Desselle
Licensed Insurance Agent

Having a solid understanding of personal loans makes you think about how to react when you lose the ability to repay your debt. Is there a solution? Of course, yes. Personal loan protection insurance could be an answer. However, is it worth protecting a personal loan? Do you need to invest in holding such a policy? How does it work? This article will surf the topic and attempt to answer your questions. That all helps you make a clear judgment as to when to buy insurance for your personal loan.

What Is Personal Loan Protection Insurance?

Definition: Personal loan protection insurance is a consumer credit insurance that protects you from defaulting on the loan. It is a pre-planned manner to enable you to cover the loaned amount when you lose your ability to do so. The inability can result from a variety of circumstances such as redundancy, sudden health problems, accidents, and even in the event of sudden death. The coverage and assistance depend on the clauses and exclusions mentioned in the insurance policy.

Personal loan protection insurance policies are offered in conjunction with personal loans, upon the borrowers’ consent. Just like health insurance, accident insurance, or home insurance, personal loan protection insurance is supposed to be a well-studied plan to rescue you from potential financial troubles. The insurance has different names in different countries.

Who Is Loan Protection Insurance For?

  • Personal loan protection insurance is important for you if you have a personal loan other than a car loan or a house loan. It is intended to help you cover the loan repayment in specific circumstances. These circumstances are described in the policy document you are going to sign.
  • The insurance is not yours if you wish to cover expenses such as grocery shopping or flight tickets. As per the policy clauses, and in most cases, the lenders receive the payment directly from the insurer.
  • Buying personal loan protection insurance is a thing for you to do if you wish to enhance your credit history. It permits you to continue paying your debts regularly even when facing specific circumstances such as job loss or health-relevant problems.

Therefore, make sure that this insurance is really of help when you are in need. It is meant for people who have a set target.

Who Is a Loan Protection Policy Not For?

  • Stemmed from the above, the insurance is not for you if you are from those who
    seek assistance to cover their car loan or mortgage
  • would like to earn some cash for their daily expenses
  • are at the edge of their employment and going to be redundant or retired
  • who already have a disability, employer benefits, or life insurance
  • who would like to take advantage of the insurance to get involved in other expenses such as travel, shopping, or cosmetic surgeries

What Does Insurance for a Personal Loan Cost?

When surfing the web, this type of insurance is not recommended. As per Credit Karma, it is more expensive than other insurance types. The outcome does not justify the price. However, when evaluating the cost, you should consider the terms, conditions, and exclusions of the insurance policy. These factors play a major role in your evaluation outcome.

What is the Criterion?

There is a certain criterion for you to meet to have personal loan protection insurance. Though different from an insurer to another, the criteria in most cases measure some or all the following:

  • The total amount of the personal loan you expect the insurer to protect
  • Your credit history
  • Whether you are getting the insurance from the loan provider
  • Your employment type, working hours, fitness for work, and retirement age. Applicants must be employed at least 16 hours per week on long-term contracts. They can also be self-employed for a specific period prior to applying for this insurance type.
  • The recommended age range of applicants is between 18-65 years old.
  • Your gross annual income as so as the bonuses which appear in your payslip
  • Your current and preexisting health conditions
  • Whether you committed a self-inflicted injury
  • Your pregnancy and childbirth status

Is it Cost-Effective?

Do I need to Spend on Personal Loan Protection Insurance? At first, glance, when signing a personal loan contract, paying to insure it may look like an additional burden or a low-value product. Well, it is not exciting. It is optional. However,

  • While circumstances such as redundancy, sudden sickness, or accident cuff your hands, the insurance helps you overcome the case.
  • The effectiveness of the insurance is emphasized in cases when you do not have sufficient savings or additional source of income.
  • The insurance will help you cover the personal loan you received without influencing your credit history or increasing the interest rates.
  • The amount covered may reach 70% of your gross earnings.

Therefore, personal loan protection insurance looks cost-effective. However, all that depends on a variety of factors that make the terms and the conditions of the insurance policy in addition to your own circumstances. You need to go through these details and weigh your options carefully.

How Personal Loan Protection Work?

As all of us are aware, financial institutions are not charitable or welfare organizations. They have their objectives while consumers have their desires. They wish to guarantee the repayment of the loan, increasing their income and making a profit.
On the other hand, consumers would like to reduce the loan risks, overcome any potential default while building or improving their credit history. Consumers will avoid any additional expenses which look meaningless and serve as an obstacle to their financial wellbeing.

What You Should Know About Loan Protection Insurance?

  • According to the policy, there will be a time slot between taking the policy and submitting a claim. Submitting a claim takes place after continuous unemployment or health/inability issues. However, you can submit such a claim after a certain type that follows the start of your commitment to the insurance.
  • According to the policy, you will be obliged to invest in the insurance for a certain period and pay its costs prior to canceling it. This period is called the “cooling off” period and it is usually 14 days after signing the policy or receiving the agreement, whichever comes late.
  • In the case of cancellation, you usually will be allowed 30 days to pay the incurred expenses in relation to the insurance policy.
  • If insured, the amount that you will be refunded depends on the insurance policy.
    Depending on the insurance company and policy, the insurance covers your personal loan payments for up to one or two years.
  • In the event of death, some insurance providers will cover any outstanding balance up to $100,000.

How to Get the Best Deal on Personal Loan Protection Insurance?

  1. Study your requirements carefully. Re-examine the type of insurances you have and those that you must have.
  2. Check available insurance providers carefully. It is not necessary for the loan provider to be your insurance provider. In most of the cases, lenders do not provide the best criteria.
  3. Be definite about the personal loan you wish to protect. You may have more than a loan and wish to protect the one that costs more.
  4. Be clear on the number of years you wish to be insured for. The personal loan should not take a long life to be repaid.
  5. Insurance providers usually cover you up to retirement age. However, define the period that suits you considering the relevant fees.
  6. Compare the cost of the personal loan protection insurance to that of the other available insurances. That helps you make a better decision. For instance, medical insurance may cover you way beyond what personal loan protection insurance covers.
  7. Check the offered policy to see what waiting periods and eligibility criteria apply to claim benefits. This enables you to understand how to demand a refund when you meet the criteria.
  8. The insurance should represent value for money. Therefore, look for the insurer that offers the best funding criteria.
  9. Seek professional financial advice to support your decision. You may contact the consumer advocacy facility near you.
  10. Check whether you already have such insurance purchased that you have not paid attention to earlier. It happens that loaning firms include customers in such agreements attached to the loan agreement.
  11. Thoroughly read the terms, conditions, and exclusions of a potential policy before being committed or signing any paper.

Conclusion

While the personal loan is your safe harbor when in need of immediate and large cash, the personal loan insurance, on the other hand, is meant to strengthen that same harbor. Therefore, never underestimate it. Instead, conduct a thorough search and re-evaluate your requirements. That is the best path to arrive at a mindful judgment. You will know when to get insurance on a personal loan.

Insurancy Recommends

Cautiousness is a necessity. It happens that the insurance company’s staff sell you the insurance for gaining a commission from their employer. They also may pretend that you will get a lower interest rate on your personal loan while they transfer the additional cost to your personal loan insurance. It also happens that the insurance is valueless. Therefore, to get the most out of the product, consider studying available options carefully, examine the clauses, limitations, coverage, and refund potential.

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  • Written by

    Brian Greenberg

    CEO / Founder & Licensed Insurance Agent

    Brian is the founder and CEO of Insurist and carries Life, Health, and Property & Casualty licenses in all 50 U.S. states. Since 2013, Brian has been a member of Million Dollar Round Table, a designation for the top 1% of financial advisors worldwide. Brian has been featured in Yahoo! Finance, Money.com, Entrepreneur.com, Life Happens, Forbes, MSN, and Good Financial Cents. Brian’s goal is to show customers the best products, the quickest answers to their questions, and provide expert advice.

  • Reviewed by

    Grant Desselle

    Licensed Insurance Agent

    Grant's past experience includes work as a licensed sales agent for Hagerty Insurance. He has reviewed thousands of existing auto policies across the nation and issued hundreds of new ones on everything ranging from classic cars undergoing restoration to modern exotics and motorcycles.

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