Loan protection, also called ASU insurance, can be bought by people with monthly loan payments and full-time jobs who are worried they might lose their jobs because of an accident, a long illness, or something else.
As long as you make sure that loan protection is right for your needs, it will start to pay out after a set amount of time when the policyholder has been out of work for a long time. For some providers, this can be anywhere from 31 days to 90 days.
Most policies go back to day one and give you tax-free income for up to 12 months. Some loan protection policies give you tax-free income for up to 24 months. You do have to make sure that a policy is right for you, as the coverage isn't right for everyone, but if it is, it could give you peace of mind and help you stay out of debt. Some of the most common exclusions are having only part-time work, being retired, or being sick at the time the policy is bought.
Loan protection has caused confusion in the past, and while some positive changes have been made, many more need to be made. Most of the time, when a high street lender sells a policy along with a loan, the customer doesn't fully understand what they're buying and doesn't know that the policy has exclusions or the total cost of the cover when added to the loan.
After a very strong complaint to the Office of Fair Trading (OFT) in 2005, the Financial Services Authority began to look into the sector. After that, they gave fines to a few big names on the high street. Then, the OFT sent the sector to the Competition Commission. They are looking into the loan protection and payment protection insurance industries and are expected to come to a decision in February 2009.
If you want the security and peace of mind that loan protection can give you, make sure you know what the product is and what it can do, and stick with companies that only offer loan protection and payment protection insurance.
