The pros and cons of loan protection insurance

Loan protection insurance has come under fire recently as a result of Financial Services Authority and Office Of Fair Trading investigations and the subsequent referral to the Competition Commission. Some consumers and financial commentators have denounced it as a poor value product, and it may be in terms of the cost of premiums that some providers, but the actual theory behind loan protection insurance is extremely advantageous and beneficial.

There are certain positives and negatives associated with loan protection insurance that may enable an individual to make up his or her mind as to whether loan cover is needed or not. Neither the positives nor the negatives may be immediately obvious because of the bad press the payment protection insurance industry has received in the past couple of years. However, loan protection insurance should be looked at impartially until an individual knows all of the facts.

In terms of positives, loan protection insurance can provide infinite peace of mind. The last thing you want to worry about if you lose your job is whether or not you will be able to pay off your loan. With loan protection insurance, you do not need to worry at all. It will pay off up to twelve to twenty-four months’ of repayments over that period of time, thus removing the worry for you. The product itself can be of great value in such circumstances. There are also standalone policies that can be paid monthly, thus not stretching your budget too much.

However, amongst the negatives is the fact that many individuals may actually end up paying more for their loan protection insurance because some providers add it to the loan total, which thus increases the repayments made. Also, loan protection insurance may represent poor value for some consumers because it is not relevant for everyone. If you work less than sixteen hours a week, for example, you would not be eligible to claim, and you may not have been told this when you took the policy out.

It is up to every individual to weigh up the pros and cons before taking out loan protection insurance and to seek independent advice if necessary.