Loan protection insurance is a kind of insurance product that offers coverage for when an individual takes out a loan. In case something happens and the borrower is unable to make payments towards his loan, the loan protection insurance policy kicks in and takes care of the payments. The amount of coverage and the period for which the policy will cover the loan payments depend on the specific loan protection insurance that an individual takes out. Usually, loan protection insurance is taken out at the same time that an individual applies for a new loan.
Loan protection insurance is not available for all types of loans. Home mortgages, in particular, are not included in the coverage offered by loan protection insurance. Personal loans, car loans, and credit cards, on the other hand, are usually covered by loan protection insurance.
When considering taking out a loan protection insurance policy, it is important to take note of the exclusions stipulated by the insurance company. These exclusions vary widely depending on the location and the specific insurance company that you deal with. For example, some insurance companies will not pay out if the policyholder is unable to make payments if he falls ill due to a pre-existing condition. More so, some insurance companies will charge higher premiums depending on the age of the policyholder at the time the loan protection insurance is taken out.
Another consideration is the fact that, while loan protection insurance does provide a degree of certainty for the future, it also adds to the actual cost of your loan. If you are somehow sure that you will be able to afford loan payments no matter what, you may actually be better off without loan protection insurance.