Loan protection you can obtain from most lenders offering larger loans is intended as a type of insurance that will help you in case you encounter any financial problems which means that you are not able to repay what you are going to the lender.
Of course, the insurance does not cover all types of financial problems but only a select few. If you incur a lot of unnecessary costs and are therefore unable to repay the loan, the loan protection will not come in and help.
Should you have a loan protection?
It is not possible to say either yes or no to this question but it is entirely up to your own situation whether it is good or not with a loan protection. But a little how to think, you can read about in the next two headings.
No loan protection though
If you have a strong financial situation that you do not think will change in the foreseeable future then a loan protection is probably not for you. For example, a strong financial situation may mean that you have a job that you can feel very confident about. You can also say that if you are a pensioner you have an income that you can feel safe in that you will always have, thus probably not a loan protection is for you. Then it should be said that it is not always possible to take out this insurance if you are a pensioner.
Obtain loan protection
If your financial situation does not look as good while you are applying for a loan, it may be a good idea to obtain a loan protection. If you look for work then you may be working in an industry that currently has problems and thus you cannot be sure to keep the job. Then you should know that it costs money to take out a loan protection so the cost is something you have to weigh in too. What you do if you take out a loan cover is to buy you additional collateral.
What does a loan cover cover?
As for all types of insurance, it can differ a little from the different places where you can obtain a loan protection in terms of exactly what it covers and not. But generally speaking, a loan cover normally covers.
If you get rid of your work, the loan protection here will go in and help you. This is also probably the most common reason why people obtain this type of insurance. You must have a job when you take out the insurance and there should be no plans for layoffs where you work. Then it is also not certain that this part of the insurance will take effect until a few months. All to prevent a person from taking out insurance when he knew he would be terminated soon.
Can’t continue working
If you are unlucky, there is a risk that you will either become ill or injured in such a way that you have to quit your job. This often leads to a clearly reduced income, which can affect the ability to repay on a loan. Just as you must have a job, you also need to be healthy when the insurance is taken out.
Borrowers who are deceased
If a borrower who has loan protection insurance should die during the loan period, insurance will go in here and help with the repayment of the loan. However, the rules that different companies have are different for each other so check this out carefully.
How does loan protection work?
A loan cover replaces the cost that arises each month for your loan. This means that it covers both interest and amortization. Should you have an interest-free loan, the loan protection will only cover the cost of the interest.
If you have a loan where you pay off every month, then this loan will be repaid as usual while the insurance helps you, thus the total loan decreases as it would with your regular payments.