Have you heard of loan protection when you’ve been looking for loans? It’s something that many lenders today offer, but what is it? Here on the page we answer this and why it might be a good idea to have
A loan cover is a type of insurance that some lenders offer you to take out when you take out a loan with them. There are different types of loan protection with different terms, so it is important that you read the agreement carefully before you sign it.
What is loan protection and how does it work?
Loan protection, or payment protection, becomes an extra expense in connection with your loan and if you have a tight finances in advance, this may seem unnecessary.
But loan protection can be a good investment if your life situation changes. The loan protection works in such a way that if you become involuntarily unemployed, your costs on the loan are paid off for a year (and in some cases longer). Even with reduced work capacity and thus lost income, the loan protection can go in and cover your loan costs. Borrowing costs are covered to some extent or entirely. You can choose how large the insurance amount should be when you take out your loan cover. In the event of death, the entire debt is paid off.
Who can take out a loan protection?
In principle, everyone who takes out a loan can also take out a loan protection. However, not all lenders offer loan protection for their loans. There are also some requirements that you as a borrower must fulfill in order to sign it.
When you take out a loan protection you have to be healthy and have a job. Some lenders also have an age limit and often both an upper and a lower limit. You must also not be aware of redundancies at your workplace, future unemployment or sick leave. A loan protection is directly linked to the loan you take and cannot be transferred to other loans or other persons. You can get a similar or similar protection by taking out life, income or health insurance for example.
How much does loan protection cost?
Loan protection usually costs a small fee, this fee is called premium. However, this insurance premium is not calculated in the same way as other premiums. When it comes to loan protection, the premium is calculated on the basis of a certain percentage of the loan’s size.
Different lenders apply different percentages, but they usually lie at about 6% – 9%. The premium is paid monthly on the same invoice (or direct debit if you have chosen it as payment method) as amortization and interest.
Sometimes lenders offer loan protection free of charge for a certain period; be the loan’s first 2 months. On most lenders’ websites you can clearly see if they offer loan protection or not. While it may cost a little extra to take out loan protection, it can be really worth it if you suddenly end up in an unexpected and difficult financial situation. In addition, it is usually cheaper than the other mentioned insurance policies.