Loan protection insurance can be taken out by those individuals who work full time. They can protect their loan or credit card repayments if they should find themselves unable to work due to accident, illness or unemployment. The policyholder would receive an income that would be tax-free after a pre-determined amount of time.
The waiting period depends on the provider but is usually between 30 and 90 days after becoming unemployed or unfit for work. Once the policy had started to provide the individual with an income, it would then carry on for between 12 and 24 months. The key facts should be given with the policy before buying and these must be read. It is a lack of information at the time of buying cover that has led to many problems relating to loan protection and polices being mis-sold.
The cost of the premiums for loan protection insurance varies greatly. On the one hand taking out cover alongside the loan at the time of borrowing can almost double the cheap loan. The cheapest possible loan protection can be taken with a standalone provider. By getting a quote from the standalone provider, you are also more likely to get access to the information needed regarding cover. These include when the policy would begin and end and the exclusions which can be found in all polices.
Loan protection insurance can be a lifeline despite the fact that faith has dropped in the sector. This resulted from an investigation that began in 2005 after the Office of Fair Trading announced mis-selling. This was sparked by a super complaint from the Citizens Advice. Mis-selling was found to be widespread and the Financial Services laid out changes that needed to be made within the sector. Along with this, they fined several names on the high street and meanwhile continue their investigation. They also referred the sector to the Competition Commission for an in-depth review.
There has been some changes made already and the Financial Services Authority plan to introduce comparison tables in 2008. It is hoped that these will make loan protection insurance and the related products much easier to understand. Currently consumers find policies confusing; this is generally due to the technical jargon associated with the cover.
The comparison tables will make the products more transparent. They will highlight exclusions and the cost of a policy. They will also help the consumer to choose which type of payment protection would be the most suitable. Loan protection insurance will help when it comes to the loan and credit card repayments. However, there is also mortgage and income protection to be considered. The tables will ask the consumer a series of questions relating to their circumstance. This will then lead to them buying a policy that is more suited to their personal circumstances.
Simon Burgess is Managing Director of the award-winning British Insurance, a specialist provider of loan protection insurance, mortgage protection insurance and income protection insurance.
