A personal loan can help you when you need money to buy a car, take a holiday, or renovate your home. Like other loans, you need to make regular repayments and repay the total loan amount in a timely fashion to avoid any negative impact on your credit score. You may wonder what your options are if you’re unable to meet the repayment timelines due to uncontrollable circumstances. One option could be taking out a personal loan insurance policy, so it’s good to know how it can help in this situation.
One reason you may struggle to make your repayments is if you’re unable to continue working. Whether this is due to an illness or an accidental injury, or if you lose your job. Personal loan protection insurance can help you to cover the repayments.
Is it mandatory to take insurance for a personal loan? No, but it can safeguard you against unforeseen situations that may affect your ability to make timely repayments. You can buy a personal loan protection policy either when you take the loan or later.
What does personal loan protection insurance cover?
What is covered varies based on the type of policy and your situation. Some of the typical issues that will be covered in the policy include:
- Loss of income: If an accident, injury or a severe ailment affects your earning capability. The policy may offer assistance until the loan is repaid or for a set period, or until you resume work.
- Loss of employment: If you lose your job, you can file a claim for assistance under this policy. However, the policy benefits are not available if you resign or accept voluntary retirement or redundancy.
- Loss of life: Some insurance policies may repay the outstanding balance of your personal loan if you suddenly die, saving your family from a load of debt.
Check the policy’s product disclosure statement (PDS) to know more about the terms and conditions specific to the policy you’re looking at purchasing.
Are there any eligibility criteria?
Like any other insurance policy or financial product, there are eligibility criteria you will need to fulfil before applying for a policy. Some of these include your age, type of employment, and residential details. Insurers may also have other requirements if you need personal loan insurance cover for a larger loan amount, usually exceeding $20,000. Some financial institutions may offer this insurance only if you also take out the personal loan with them. You can check with your lenders to understand more about the eligibility criteria for a personal loan protection insurance policy.
What is the cost of a personal loan protection insurance policy?
Personal loan insurance costs are calculated on several factors. These include the type of cover, the loan amount and its duration, the monthly repayments of the loan, your age, and if it is in a single name or jointly held.
Is there a waiting period?
There may be a waiting period, depending on the policy, between its start date and the time when you can file a claim. There might also be a period in which you have to wait after you become unwell or are injured or lose your employment before you can file a claim.
Some providers offer a cooling-off period, during which you can cancel the policy and receive a refund of the premium you’ve already paid. If you cancel the policy after the cooling-off period, the insurer may not refund the entire premium amount.
What are some benefits of a personal loan protection policy?
If you’re unable to work, you can feel good knowing that your loan will be repaid, which gives you and your family complete peace of mind. A personal loan protection policy also provides financial protection to your family in case of your untimely death.
If you’ve taken out a personal loan, and fail to make repayments, your credit score suffers. With a personal loan protection policy, you’re able to continue making timely repayments even when you’re unable to work which safeguards your credit history.
A personal loan protection insurance policy can be purchased from your lender when you take out your loan or from an alternate insurer. It’s best to make sure you understand what is personal loan insurance before you decide to purchase a policy. The best way to get a better understanding of the policy is to read the PDS carefully and research various options to find the best deal for maximum benefits.