Can I take out payment protection on the loan?

When most people take out a loan, they fully intend to pay it back. Hence they may not think about what would happen if they should encounter an unexpected problem that means that they would have trouble making their loan repayments. What if you fall ill, and can't earn a decent income any more? Maybe you could be in a car accident? You could also be made redundant, sometimes when you least expect it, and if that happens then you could struggle to make repayments.

Should you have taken out a secured loan, unless you are sure that you can repay the loan throughout its course, you should take out some protection on your payments. A secured loan is taken out using your property or something very valuable to you as collateral, and your lender has the right to repossess that property should you default on your payments. Even if you have an unsecured loan, the lender can resort to the courts to recover the money they lend to you, and in the end your property can be sold to make good on what you owe.

This is why personal payment protection plans (PPP) are a good idea. You should always consider them even if you feel you are very likely to pay back the loan comfortably. A good PPP should include unemployment cover that caters for most occupations. Should you be self employed, you should be able to get PPP to cover you for insolvency or bankruptcy, as well as sickness or an accident stopping you from working.

Some PPPs require a medical, but most will not, relying on you to be honest with your health situation (should you claim for sickness, they may look into your medical history, and check that you didn't lie about your medical past, in which case you would be denied cover). You should be given cover for accidents, sometimes for accidents resulting from leisure pursuits that are hazardous. You should also be given some sort of sickness and hospitalisation cover, and life insurance as well. Finally, you should get cover for the length of the loan, and if not you can get renewable cover should the loan be outstanding at the end of the term of the payment protection.

Bear in mind that you must prove when you claim that you didn't know when you bought the policy that you were sick or about to be made redundant. There is usually a 3-6 month period after you buy the policy during which you are not covered. Also you may need to have a deferred period before you receive payment, and the cover will only be for a certain period. Check the policy details carefully.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

© AskFinancially.com 2008

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