title:Are You Paying Too Much For Your Loan Insurance?

author:Peter Kenny
source_url:http://www.articlecity.com/articles/business_and_finance/article_7186.sh
tml
date_saved:2007-08-23 17:04:56
category:business_and_finance
article:
When you take out a loan, it is likely that you will be offered loan insurance to
protect your payments should you be unable to keep up with them due to illness or
unemployment. However, many of the loan insurance policies on offer cover you for
very little and are extremely expensive. If you want to find out what you should be
paying for loan insurance and what to avoid then this article can help you to
decide.
What is loan insurance
Loan insurance is often known as payment protection insurance or PPI. This type of
insurance covers you if you cannot make your loan payments because of an accident,
illness or involuntary unemployment.
How much does it cost
The price of loan insurance can vary greatly, but is usually added as an extra to
your payments each month. Although the payment figure might look small, if you add
it to the total loan amount and then add interest the number can seem much more.
Hidden costs
Although a loan might seem cheap, when payment protection is added the loan price
can increase significantly. For instance, the amount you pay back on a 5000 loan
over 5 years can increase by over 1,500 when loan insurance is added. Often, loan
insurance is added without you knowing about it, which means you are paying for
something you didnt even ask for.
The benefits
Despite its high cost, there are some benefits to loan insurance. It can give you
the peace of mind that if something should happen to you then your payments are
covered for up to a year. This means that you wont be in financial difficulty or
risk default if you are ill or injured. If this sort of security is important to
you then loan insurance is probably a good idea.
Lack of cover
Although it can give you peace of mind that you will be covered, loan insurance has
extremely limited coverage. For example, if you are self employed it is unlikely
that the unemployment clauses will cover you unless your business has ceased
trading. Before getting any loan insurance you should check that you are covered
for the things that are important to you, otherwise the policy is not worthwhile.
Alternatives
There are some alternatives to loan insurance that are usually cheaper. Firstly,
you can usually get the same sort of loan insurance cover independently from your
loan provider. The price of this insurance is usually much lower than the price
offered by your insurance company. Also, some of the clauses of the loan insurance
may already be covered under other insurance policies that you have. Loan insurance
can be worthwhile, but unless you are covered and can get the insurance for a good
price then it is usually not worth having. However, if you shop around and know
exactly what you need to be covered for, you can find insurance that will cover you
in the event that you cannot keep up with your loan repayments.
About The Author
Peter Kenny is a writer for creditcards-gb. For additional articles and an
extensive resource for everything about credit cards, please visit us at <a
href="http://www.creditcards-gb.co.uk" class="hft-urls">http://www.creditcards-
gb.co.uk</a> and <a href="http://www.thriftyscot.co.uk/Insurance/" class="hft-
urls">http://www.thriftyscot.co.uk/Insurance/</a>
This article was posted on September 11, 2006
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