What is personal loan insurance?
Personal loan insurance is a form of accident, sickness and unemployment insurance.
Accident, sickness and unemployment (ASU) policies generally come in three different types:
The variations determine what the main aim of the policy is. With personal loan insurance, the main objective is to protect the loan repayments in the event of accident, sickness or redundancy. Should one of these events stop you from working then the loan insurance policy will payout the sum insured for up to 12 months. This should provide enough time for you to get back on your feet. At the end of the 12 months, or earlier if you return to work, the payments will stop.
Put simply, if your loan repayment is £250 per month, then this is the amount you need personal loan insurance for. The premiums for loan insurance are extremely competitive and much, much lower than policies provided by the loan companies themselves.
Providers of personal loans rely on the sales of loan insurance to produce a valuable stream of income. They do not have to provide a competitive policy and so the premiums are much higher than a personal loan insurance policy which is available from an independent source.
Getting the best loan insurance
How do you get the best loan insurance?
Generally speaking, the worst place to buy loan insurance from is the personal loan company. Whilst they might encourage you to take up their loan insurance cover it is likely to be very poor value for money.
Loan insurance policies provided by lenders are loaded with high amounts of commission, this can be 40-60% of the premiums that you pay! Unsurprisingly, the company will want you to buy their loan insurance, and the reason is very simple to see.
A much better option is to buy an independent personal loan insurance policy.
Independent providers of personal loan insurance need to provide loan insurance policies that:
- have competitive premiums
- have good quality cover
- are easy to understand
- are easy to apply for
This competition drives up the quality of the cover and drives down the premiums. These types of policy are great value for money and so much cheaper than loan insurance from your bank or finance company.
One added advantage of buying an independent personal loan insurance is that you are in control. You can decide to change the policy if you need to, or stop it when your loan is paid off.
