The Loan insurance is taken out mostly to safeguard against the fact that if by chance you were to lose your income then your loan repayments would still be able to be paid each month without worrying about from where you would be able to find the money to pay the loan repayment.
When bought with your situation in mind, it could give you a monthly replacement income that was set when you got the quote for the cover and was based on the amount of money you pay each month for your loan payments. Once you had been out of work for a set amount of time, usually between 31 and 90 days, you would get a lump sum payment that wouldn't be taxed for up to 12 months, and with some providers, for up to 24 months. You do need to know that there are a lot of things that can make you ineligible to make a claim on a policy, and you need to make sure you read the fine print and the most important parts of a policy before you buy it. Some of the most common facts are if you are self-employed, at retirement age, only work part time, or have an ongoing illness at the time you buy the policy.
Loan insurance has caused a lot of trouble in the past. In 2005, the Financial Services Authority looked into the industry after the Office of Fair Trading got a big complaint from Citizens Advice that showed mis-selling was common. Many high street lenders were fined, and the sector was then sent to the Competition Commission for an investigation, which is expected to end in early 2009. Even though there have already been some improvements, the Financial Services Authority has found that there hasn't been much change in the way insurance is sold. Many companies still don't give enough information or make the product easy to understand when the policy is bought.
The specialist standalone provider will always give the customer all the information they need to make sure they have a policy that fits their needs. For example, they will tell them what the policy covers and what it doesn't cover. Loan insurance can give you a lot of peace of mind and security about your income, but you can only get it if you are eligible.
One good thing that will happen in March 2008 is that comparison tables will be put in place. These tables will ask the consumer questions that will help them figure out which type of policy is best for them, how much they will pay, and what is not covered. Until this happens, the specialist provider is your best bet. They will always be able to give you the best advice on all parts of a loan insurance policy and the lowest monthly premiums.
