Personal loan insurance
A personal loan can be used for medical bills, debt consolidation, or events such as weddings and adoptions. However, you need to understand that 3-month loans monthly payments may not be the only associated costs. Most borrowers purchase personal loan insurance as security from defaulting just in case an unexpected event happens. In many cases, the added security of a personal loan can be an unnecessary added cost. However personal loan insurance should not be mandatory for people finding loans.
What is loan protection insurance?
Loan protection insurance is used to cover certain unexpected events that may occur for a short period, making you not pay your loan installments as expected for a specified period. There are four types of loan protection insurance covering various situation.
- Credit life insurance: This type of loan insurance covers those people that lose their lives before fully repaying their loans. It pays the whole amount of the remaining balance or part of it.
- Credit disability insurance: It is further referred to as health or accident insurance. It covers your loan payments for the period you can't work due to poor health.
- Involuntary unemployment insurance: This insurance coverage can pay your loan for a while, just in case you get laid off or lose your job.
- Credit property insurance: This is necessary when you have used your personal property as collateral for a loan. This insurance covers the property itself rather than the loan repayments.
Advantages and disadvantages of loan protection
A significant advantage of loan protection insurance is that it assists you not to default or make a late loan payment when unexpected events happen. Late payments and defaulting can significantly affect your credit score.
However, just like other types of insurance, your loan protection policy may not be necessary. Moreover, you are required to understand the details of your insurance policy before acquiring it.
What to look out for in a loan protection insurance
It is necessary for you to fully understand the claim process so that you don't get disqualified from using your insurance on the loan. Thus, you are required to read and understand the policy effectively. Filing an insurance claim after the payment due date has passed can disqualify you from an insurance cover.
Also, you need to understand what is covered by insurance. Missing work because of a medical condition can disqualify you from getting covered by insurance. There are also limitations if you are a part-time employee or self-employed.
Moreover, be cautious of lenders who make it mandatory for you to have a loan protection insurance to qualify for a loan. Credit insurance is usually optional. It's illegal for a lender to make it mandatory for you to have a loan insurance policy. The lender is also not allowed to include the loan insurance policy without your consent. However, lenders are required by law to notify their customers of the cost of credit insurance and loan costs. You are supposed to accept the insurance coverage in writing if you are comfortable with its terms and conditions.