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Loan protection insurance
Loan protection insurance is a type of income protection insurance designed to cover your loan repayments if you lose your job or find yourself unable to work due to an accident or illness. It can cover various types of debt, including car finance, credit cards, mortgages and more.
What is loan protection insurance?
Unlike payment protection insurance (PPI) which is tied to a specific loan or credit repayment, loan protection insurance is flexible, providing monthly benefits that are paid directly to you. This means you can choose how you spend it, from covering mortgage repayments to paying off debt on credit cards.
The amount of cover on your loan protection insurance can be as much as 70% of your gross earnings and can be tailored to suit your specific needs.
There are two main types of loan protection insurance: short-term and long-term policies.
Short-term loan protection policies:
These pay out for a maximum of 12 months and provide financial support following involuntary redundancy, an accident or an illness. As they only last a year, this type of policy is more affordable than long-term loan protection insurance, providing flexible and manageable loan cover for a wide range of scenarios.
Long-term loan protection policies:
These provide more substantial cover than short-term loan protection policies, with a benefit period that can last up until retirement age. While these policies are designed to cover you against accident and sickness, long-term loan protection policies do not cover unemployment as a result of involuntary redundancy.
How does loan protection insurance work?
Long-term sickness leave is affecting an increasing number of people, with the cost to UK businesses expected to rise by 15% by 2030.
If you were unlucky enough to be one of those people, loan protection insurance would help to offset financial uncertainty by paying you a tax-free monthly benefit, acting as an income replacement while you are out of work.
You can choose how much you receive as a monthly benefit, usually with a limit of up to up to 70% of your gross annual income. The cover you choose will be reflected in your monthly premiums, so it’s important to consider how much you would actually need in the case of a claim. ActiveQuote’s loan protection insurance comparison tool can help you to identify the right policy for you.
Do I need loan protection insurance?
While none of us like to imagine ourselves becoming too ill or injured to work, the reality is that sickness and accidents can happen at any time. Depending on your situation, this could leave you unable to work for a prolonged period of time, jeopardising your financial commitments.
Likewise, involuntary redundancy is not always predictable and results in financial strain for many people. Although redundancy levels have dropped since 2014, the UK job market still faces uncertainty; around 97,000 people were made redundant between March and May 2017, according to the Office of National Statistics (ONS).
In addition, average debt levels per UK household reached a record £12,887 in September 2016 – that’s without even taking mortgages into account. If you have debts that you would struggle to pay off without your current level of income, loan protection insurance can help to provide peace of mind and safeguard you in a worst case scenario.
How much does loan protection insurance cost?
The monthly premiums for your loan protection insurance policy will depend on a variety of factors, including:
- Your current employment situation
- Your gross annual salary
- Your desired level of cover
- Personal details that may affect your likelihood of making a claim
ActiveQuote can help you to compare prices of the most popular loan protection insurance policies, finding the best deal for your given situation.
How do I compare loan protection insurance policies?
At ActiveQuote, we help customers to select the best loan protection insurance policy for them by comparing quotes from leading UK insurers and providing free, impartial advice tailored to their individual needs.
Whether you need a short-term or long-term policy, our loan protection specialists will be happy to help you find the best deal. To speak with one of ActiveQuote’s experts, call 0800 862 0390.