Six reasons to consider this insurance
A guide to Loan Protection
Loan Protection also known as loan payment protection insurance, is a short-term insurance product often sold in combination with loan products. More and more, consumers are becoming aware of the benefits of buying loan insurance on the open market through independent providers. Loan payment insurance is protection for full time employees against lost income due to involuntary redundancy, prolonged illness, or accident. A tax free monthly sum is paid out over either a 12 to 24 months following a covered event and depending on the loan protection policy document's terms and conditions
Loan Protection is a product designed to help people meet their monthly debt demands when job income is lost. As consumers become increasingly reliant on personal and credit card debt, they need the peace of mind to know they can meet their monthly debt obligations even when income is lost and especially in an uncertain economic climate. It often comes with a small provision that helps cover some basic monthly expenses. Loan protection is actually one of three common types of payment protection insurance (PPI).
Payment protection is a portfolio of cover that all have very similar benefits and covered events, but their purposes and features are unique.
Mortgage payment protection insurance (MPPI for short) is another of the payment insurance products. Again, the benefits of mortgage payment insurance are very similar to those offered by loan payment. However, mortgage insurance is more intended to help meet monthly mortgage obligations during the short-term unemployment periods or when income is lost due to incapacity. Homes are important assets figuratively and literally for most people. Paying monthly mortgages is important and the protection allows the insured to do so even during job loss. As with loan payment cover, mortgage protection is regularly sold in combination with mortgage loans.
This common packaging of loan protection products has actually drawn the ire of leading consumer advocate groups, including Citizen's Advice. The group actually filed a super complaint with the Office of Fair Trading (OFT) in 2005, charging many banks and High Street lenders with mis-selling of payment cover products. Chief among the allegations were high pressure or deceptive selling of payment insurance in combination with loan products.
Loan Protection – Quote and Apply
The groups pointed out that many lenders were using pressure tactics to manipulate unwitting borrowers into buying loan protection in order to secure their desired loan. Other lenders have been even more deceptive in their approach. Some lenders have habitually packaged loan protection premium insurance costs in the repayment costs of the loan. This allows them to spread the premiums over the length of the loan repayment to hide how expensive the rates are. Borrowers are often unaware they are even paying for the protection as its only notice comes in the fine print of disclosures. The costs do not appear overwhelming when spread over time.
Another mis-selling technique noted by the complaint is the regular selling of payment insurance to people ineligible to receive benefits. Loan protection is designed for full time employees. Many sellers have sold the products to part time employees, retired people, and people with pre-existing medical conditions, who are also ineligible.
The third type of payment protection is a little less involved with mis-selling complaints, but it offers some confusion of its own. Income payment protection is simply intended to offer monthly income replacement during the period of temporary job less. Although it does not replace the entire normal monthly income, it does offset much of the loss, enabling the insured to keep up with key expenses and obligations.
The confusion with income payment insurance stems from its similar name to a different insurance product known as income protection. Although these insurances offer completely different types of protection, they are regularly referred to by similar names and terms, causing regular misunderstanding. Income protection is a more expensive, longer-term insurance cover that pays benefits up to retirement at time and cover incapacity only.
The result of the complaint filed by Citizen's Advice has been improved consumer awareness and growth in reliance on independent loan protection insurance brokers. The OFT and Financial Services Authority (FSA) each conducted industry investigations. The FSA imposed fines and sanctions against banks and lenders it felt engaged in unfair selling practices. This has helped slow the practices among institutions, but some online lenders have picked up the practices.
Loan Protection – Apply online
Consumers have become more aware of the deceptive selling tactics and are better able to protect themselves when borrowing money. More consumers are now aware that they can purchase payment cover separately from loans, through independent brokers. Independent loan protection providers typically have rates that are 40 to 80 per cent lower than those offered by banks and High Street lenders. They also maintain a better reputation for credible selling.
Historically, standalone loan protection providers are also more consumer-oriented. Consumers are much more empowered as providers work to get the best products and rates for them. As more consumers are recognising the advantages of the independent provider, use of payment insurance grows. Currently, only one in three homeowners has payment cover. However, 60 per cent of new homeowners are acquiring protection.
Another reason for growth in reliance of loan protection cover is the fact that the State has largely withdrawn from unemployment assistance, offering very little financial assistance and only when you meet certain criteria. If you have savings for example, you can resign yourself to the fact that you will not get much financial help.
Until the publicity brought about by the mis-selling, many consumers still mistakenly believed they could rely on the State to sustain them. The worry of prolonged illness or recovery from injury can be stressful on its own. Lacking financial protection can only add to the burden. Given the convenience and low costs offered by standalone providers, there is little reason that consumers should not explore their payment insurance options. Loan payment, mortgage payment insurance, and income payment cover all offer excellent value through the standalone loan protection provider.
