What is loan protection insurance and why do I need it?

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What is loan protection insurance?

Loan protection insurance is a plan that provides coverage that can help you pay off your loan or mortgage. This plan can also help you make your loan or credit card payments in case of unforeseen circumstances like critical illness, accident or even death.

These insurance plans are also known as creditor insurance, balance protection insurance or debt insurance.

These loans are usually provided at the time when your mortgage, loan, line of credit or credit card is approved. However, some plans can allow you to sign up at a later time.

Please note that you do not have to take this insurance to be approved of a loan or a credit card. These insurance policies are separate products from mortgages, loans, credit cards or lines of credit.

It is also important to note that costs for these policies may vary by age as well as factors such as credit history and amount of debt outstanding.

How does loan protection insurance work?

Loan protection insurance are designed to help policyholders meet their monthly debts up to a predetermined amount. The benefits of the insurance policies can be used to pay off personal loans, car loans or credit cards.

Why do I need loan protection insurance?

Loan protection insurance plans are designed to help insurers find financial support in times of need. These plans are especially useful in cases of disability, illness as they can help cover monthly loan payments and protect the insurer from default.

You may need loan insurance for the following reasons:

  • Your family doesn’t face the brunt of loan liabilities if there is an unforeseen situation that makes you incapable of paying off your loan.
  • Your credit score remains intact since you don’t miss on any repayments, thanks to the insurance coverage.

Deciding if you need loan protection insurance

Before you enter into a review period or sign up for insurance on your credit card or loan, it is advisable that you make sure you review the cost, coverage, and the benefits that could be paid by the insurance policy. This information will be provided in the certificate of insurance. A sample of the certificate can be provided by the insurance provider or you can find one on their website.

You need to determine:

  • If you are eligible for loan insurance.
  • How much the insurance will cost.
  • What the maximum benefits are.
  • What the exclusions or limitations are.
  • When an insurance benefit will be paid or declined if you make a claim.

However, having this type of insurance does not necessarily help lower loan interest rates. For more information on loan insurance policies, feel free to contact us. We’ll be happy to help.