Loan protection insurance
Loan protection insurance is a policy designed to pay you a tax-free monthly benefit to cover the cost of your debt repayments if you cannot work through accident, sickness or unemployment.
With an income protection insurance policy you can tailor your cover to any number of loans such as car finance, debt repayments, credit cards, mortgages or any other financial commitments.
The amount of cover on your loan protection insurance can be as much as 70% of your gross earnings, although you can tailor this amount to suit your needs.
It is important to remember that loan protection insurance is not the same product as PPI (payment protection insurance) which is tied to a specific loan or credit repayment.
Loan protection insurance is more flexible and the monthly benefit is paid directly to you; so how you spend it is entirely up to you.
How does loan protection insurance work?
If you were unfortunate enough to be one of the 20% of people in the UK1 who require long-term sick leave during their working lives, a loan protection insurance policy could ensure you remain financially stable.
An accident or sickness can occur at any time and could leave you unable to perform your job and earn an income. In the event of you being unable to work a loan protection policy can pay you a tax-free monthly benefit to act as an income replacement.
This enables you to be able to meet your financial commitments as you would if you were earning your income as normal.
It is also possible to cover involuntary unemployment as part of your loan protection insurance but this would be on a short-term (12 month) basis only.
What’s the difference between short-term and long-term policies?
There are two main types of loan protection insurance that can provide your monthly benefit for different lengths of time. You can take out a short-term or long-term income protection policy.
- Short-term - Short-term loan protection policies can pay out for a maximum of 12 months and will provide financial relief for involuntary redundancy or accident or illness. Short-term policies are becoming more prevalent in the protection insurance industry and can be more affordable and flexible for consumers.
- Long-term - Long-term loan protection policies can provide more substantial cover than short-term policies. The benefit period can last until your retirement age or until you return to work, whichever comes first. Long-term policies provide cover against accident and sickness but not unemployment.
Why would I need loan protection insurance?
No one likes to think about the possibility of falling ill, injuring ourselves or being made redundant but with a loan protection insurance policy you can have peace of mind should the worst happen.
Many of us take out life insurance to protect our families and mortgages but you are three times more likely1 to go on long-term sick leave than die during your working life. If you cannot work then you may find that you struggle to pay your financial commitments on a regular basis each month.
Redundancies may have stabilised over recent years but there are still more than 1,300 people in the UK being made redundant every day. If you were made redundant could you survive on a job seeker’s allowance of just £71.70 a week to cover all your monthly outgoings?
Compare loan protection insurance quotes with ActiveQuote
ActiveQuote can compare loan protection insurance quotes from the leading UK insurers and using our online comparison you can buy your policy online.
You can select short-term or long-term policies and choose whether you want cover against accident and sickness, unemployment or both. To speak to a loan protection specialist you can call us on 0800 862 0390.
1 UNUM 2014