When you take out a loan, you will (hopefully) have a plan in place for how you’ll pay it off. But life doesn’t always go according to plan—you might lose your job, or have to take extended time off due to illness. This can put a spanner in the works and affect your ability to make your loan repayments.
This can add a major stress to your life on top of what you’re already facing. That’s why the most prepared among us opt to take out loan protection. Also known as payment protection insurance or mortgage protection insurance, it enables you to continue paying off your loan should you be out of work or sick. And in the worst case scenario of your death, it’ll help take the financial load off your nearest and dearest by allocating money towards the loan. For the balance owing on your mortgage, it can pay off up to the full amount depending on your cover, which will come as a huge relief to your family members who would otherwise be forced to shoulder this debt.
While conditions of loan protection vary from lender to lender, generally speaking, they cover your minimum monthly repayments in case you’re unable to work or unexpectedly get fired. The period in which they do so depends on your policy and circumstances (such as how many hours you had been working), but it can be for up to a year.
In order to be assessed for loan protection, factors such as your age, the amount of your loan, the policy chosen and whether it’s a joint or single policy will be taken into account. Undergoing a medical exam isn’t a requirement for getting loan protection, but it’s worth noting that if you become ill within a certain period (usually six months), it’s likely that it will be excluded from the policy.
To find the best loan protection policy for you, check to see what it covers and how long the waiting period between the event and the payout is. Keep in mind what level of coverage you’ll need (for instance, if you have other assets that could be sold in case of an emergency, you may opt for a lower level of coverage) and if the policy suits any risk factors you may have (such as a dangerous job).
Once you have loan protection, you’ll still be able to get other benefits you’re eligible for from other sources, such as paid out sick leave from your company, or Centrelink payments.
No one likes to think about the things in life that can go wrong, but being prepared now will make emergency scenarios less stressful if they occur. Having loan protection in place can give you that peace of mind and allow you to focus on your steps to recovery, rather than just your finances.