When you apply for a loan these days, you will probably be given payment protection insurance. If you are taking out a large loan, this may seem like a good idea. If you lose your job or have a medical emergency and can't pay back your loans, these insurance policies will do it for you. But what are the real costs and benefits of this kind of thing? Brits spend more than a billion pounds a year on this kind of insurance, so it's a good question to ask.
How much insurance costs
The truth is that the lending business has become more and more competitive over the past few years. Since interest rates have been going down, lenders have tried to find ways to make more money. One way they have thought of to do this is to offer extra products with the loan, like payment protection insurance. What might surprise you is that payment protection can sometimes cost as much as the interest payments on the loan. Incredibly, the cost of the loan can double because of the payment protection costs. Because these choices can have such shocking results, people need to think very carefully before choosing them.
Have you got peace of mind?
Many people will think that, as lives and jobs become more unstable, the peace of mind that these policies provide is worth the cost. This is true sometimes, but not always. Every insurance policy is different, but there is one thing that stays the same: it is very hard to get insurance to pay out. You should read the fine print of your policy very carefully. You will be surprised to find out what is actually covered and what isn't.
For example, unemployment benefits may not start until a certain amount of time has passed since the person lost their job. Unemployment that was chosen by the person won't count, and they may have to show proof that they have actively looked for work and not turned any down during that time. This will give the insurance company dozens of reasons why they shouldn't have to pay out.
Don't go with the first price!
You should also look around in addition to these conditions. The person you're borrowing from will always offer you a policy, but it's unlikely to be the best one, and a little bit of shopping around will go a long way. You may also find better terms or terms that fit your needs better. Government rules are in place to make sure that these policies are clear and written in plain language, but consumer protection groups are still getting a lot of complaints about them.
The most important thing to remember is to be very careful if you choose an expensive insurance policy. Make sure you understand the terms and that you think they might help you. If you don't want the policy, just say no.
