What is Personal Loan Insurance?
Personal loan insurance is insurance in case you lose your job and are unable to make payments. Just like it sounds, you are expected to make every payment while you have your job, but if something happens that causes you to be unemployed, the insurance takes over payments for a while until you get back on your feet. It is a way to make sure that you are able to make every payment without defaulting when the situation is out of your control (such as the loss of a job).
Loan insurance has become increasingly harder to get in the United Kingdom. To find out why, let's review the benefits and risks of getting personal loan insurance.
Benefits
Obviously, the main benefit of personal loan insurance is the ability to make a payment when there is simply no way the payment can be made, and protect yourself against any action taken by a creditor when you find yourself without a job either due to job loss, disability or sickness.
Arguably, this insurance is a good thing. There is clearly no downside to the general idea of ensuring that action cannot be taken against you when you run into job loss, which is clearly a very serious financial struggle.
Risks
The risks and downsides to the insurance itself, however, make it not necessarily worth the reward. That is because although the insurance is beneficial and there is clearly a market for it, the cost of the insurance is substantial. The insurance can cost as much as £50 or more per month - money that can easily be saved in a savings account and garner interest while you still have your job. You are also forced to make this payment every month after you sign the contract, which means that in addition to interest you are paying some 50 pounds per month for the remainder of the loan. This can make the overall loan amount that you have paid off so vastly higher than the original loan amount that it is as though you were funneling money into the monthly payments.
There are also time periods you must wait before you can receive the benefits. Some insurers make you wait 90 days before these benefits kick in, meaning that the lenders may have already had time to charge you for your defaulted payments. And this insurance does not pay your bills forever. Eventually you have to find a new way to pay the loans or the coverage runs out. When the reason you cannot pay your loans is disability that may not be fixed in a matter of a few months to a year, the insurance was essentially a waste.