One choice you often have when obtaining a loan is to take out a loan cover or not. This loan protection is a form of insurance that will help you with the repayment of loans in case some unforeseen things happen. In this article, we will try to quickly explain what applies to this type of insurance. Then hopefully you can make a good and informed decision if you need a loan protection or not.
The first thing you can say is that it is only relevant with insurance of this type if you borrow slightly larger sums. We are not talking about any huge sums but no insurance of this kind is offered for eg micro loans.
Furthermore, there is nothing to say that all lenders let their borrowers insure their loan. With the slightly larger lenders, getting insurance should not be a major problem. If the lender you intend to have insurance in their assortment you can easily find them on their website.
What does the insurance cover?
As usual, we cannot say exactly what the rules are with the different lenders as there may be small differences. But we can go through what generally applies to loan protection.
Losing the job
If you become unemployed during the term of the loan and therefore no longer have the finances to cope with the repayments of the loan, the loan protection comes into effect. You will then receive help with the payments until you have a new job. Often there is also a maximum limit when it comes to the amount and this is often USD 15,000 per month. A limit on how long you can get money paid is also usually there and it is often at 12 – 18 months. This is most likely the most common reason for borrowers to take out insurance.
In order to take out a loan protection you have to be a permanent employee for some time and there must be no obvious termination threat.
If you are unable to work due to illness or injury and this means that you will not be able to repay the repayments, the loan protection will also apply. The time aspect and the sum that the insurance covers are usually at the same level as the protection against unemployment.
There is also a requirement here that at this time you should not be on sick leave or have feelings about something that would hinder the work.
If a borrower who has taken out loan protection dies, parts or all of the loan will be immediately redeemed. Here, the terms can differ quite well between the different lenders so check this out carefully before taking out an insurance policy.
Should you take out a loan cover or not?
There is no easy answer to this question as it is entirely up to you to think about what you are feeling. You could say that a person who feels a little uncertain about the future is probably more interested in insurance of this kind than someone who feels completely safe. Then you can’t take out insurance if there are too many fears.
Had it not cost anything with this insurance it would have been good for everyone but now it is obvious that there is an expense. Unfortunately, how much it costs can vary this too. Some lenders have a fixed sum that is a certain percentage of the monthly cost. This is often a little under 10% of this cost. For example, a lender has 8% as a cost, which means USD 320 a month if the total cost of amortization and interest is USD 4,000.
Another alternative is that you have a variable rate depending on how old the borrower is. For example, a person who is under 25 may have a monthly premium of less than half of one who is 60+. Simply because there is a greater risk of illnesses etc. for older borrowers.