At Buddii, we’re in the business of helping people buy the items that they want or need with loans that match their circumstances. We believe in helping people choose loans that suit their circumstances without overcapitalising on their financial situation.
But sometimes, things change; you might become ill or lose your job – and in these cases, you want to know that you can still service your loan.
One of the ways in which people seek to protect their loans is with loan protection insurance. Given the additional cost associated with loan protection insurance, it is natural that there will be questions, such as ‘is loan protection insurance worth it’ and ‘do I even need loan protection insurance’ – just to mention a couple.
We wanted to address some of these questions and to discuss other methods of making payment on your loan if the worst does happen and you are left without a reliable source of income. At Buddii we’re on hand to answer any questions you may have about your loan, whether it’s a question about the serviceability of your loan or a question about loan protection insurance.
Loan protection insurance explained
When you’re considering loan protection insurance, the first question many people ask is how much does it cost. Loan protection is usually calculated at a percentage of the total cost – around 10 to 15 percent of the loan amount. There are options that don’t involve loan protection insurance but still offer some level of assurance, such as loan termination insurance. This is a fixed premium which offers a fixed benefit.
- Loan protection is useful if you cannot meet your loan repayments. It usually comes into action around three weeks after you initially cannot make payment.
- Making a claim against your loan protection insurance sees a benefit paid directly to your lender and you will either have the remainder of your loan paid or a maximum benefit amount.
- Loan insurance can often be the difference between being able to keep your asset or having to surrender it to meet the payment requirements.
Benefits of loan protection insurance
Loan protection insurance is a product that, just like anything else, can be beneficial or detrimental to you, depending on how much research you have done. As a product loan, protection insurance can provide a number of benefits, including:
- Peace of mind in the event of something unexpected occurring
- Retention of your vehicle or the product purchased using the loan
- Protection of your credit score in the event of not being able to make repayments
- A choice of cover and the level of premium that you wish to pay
Loan protection insurance is not for everyone, but it can be a product which will work to alleviate risk and to give you peace of mind and security knowing that your repayments will be met even in the event of something going wrong.
How to get loan protection insurance
When seeking to apply for loan protection insurance you will generally need to be employed full time. You can still apply for income protection insurance if you are unemployed, working part-time, working casually or self-employed; but there may be additional criteria that you need to meet.
It’s important to ensure that you know how loan protection insurance cover works and any exclusions. You will generally be eligible if you are:
- Aged between 18 and 64 years
- Continuously employed for at least 20 hours per week, or casually employed where you have been employed by the same person for at least 12 months
Commonly asked questions about loan protection insurance
Is it value for money?
This should be the first question when you buy any insurance product. You need to consider whether what you are buying offers you value. If value for you comes in the form of peace of mind, and that’s what this provides, then you can safely tick that box and move on.
You can further investigate whether it’s value for money by looking at the monthly premium you pay, compared with the life of the loan, compared with the benefit you receive. It might be more beneficial to merely save a portion of money from each payment you receive from your employer and put that aside as a rainy-day fund for paying off the loan.
How long will the benefit take to pay?
In most cases, your loan protection insurance will kick in after three weeks (or 21 days) after you have become unable to make payments on the loan principal.
What other options are there, other than loan protection insurance?
You could set up an emergency fund to make payments on your loan, or you could take out something like income protection insurance which can work to protect your income in the event of an injury or illness.
Should I get loan protection insurance?
The bottom line is that the choice to get loan protection insurance is up to you. If you meet the criteria for eligibility and are concerned about not having another way to repay the loan amount if something unexpected happens, then you should consider loan protection insurance. Alternatively, consider saving for a rainy day and using those funds to your advantage.
At Buddii we can answer any questions you may have about your loan, including the possibility of loan protection insurance.