Nowadays, every time you apply for a loan, you will most likely be offered payment protection insurance. If you are taking out a huge loan, the idea may seem very attractive. These insurance policies will take over repayments on your loans if you lose your job or are involved in a medical emergency. But what are the true costs and benefits of this type of? Given that over a billion dollars are spent in the USA on this kind of insurance annually, it is worth asking yourself.
The Cost Of Insurance
The fact of the matter is that the lending industry has become more and more competitive in recent years. With interest rates getting lower and lower, lenders have sought to find out ways of increasing their returns. One way they have come up with is to offer various additional products that accompany the loan, such as payment protection insurance. What may come as a surprise is that payment protection can often cost as much as the loan interest repayments. The payment protection repayments can, incredibly, effectively double the cost of the loan. With such startling consequences, consumers must think carefully before opting for such options.
Peace of Mind?
Many people will believe that as lives and jobs become more and more unstable, the peace of mind offered by such policies is worth the price. In some cases, this is true, but not always. Every insurance policy varies, but one thing remains the same, it is tough to get an insurance policy to payout. You should look very carefully at your policy’s fine print, and you will be amazed to find out what actually is covered and what exclusions and exceptions apply.
For example, unemployment protection may only kick in after a certain period of unemployment, not count if the unemployment was voluntary, and require proof that the applicant has actively sought employment and not turned any down since losing their job. This will give the insurance company literally dozens of reasons for refusing payout in most instances.
Don’t Accept The First Quote!
As well as these conditions, it would be best if you also shopped around. The person you are borrowing from will always offer you a policy, but this unlikely to be the best policy available, and a little shopping around will go a long way. You will probably also find yourself better terms or terms that suit your needs more closely. Government standards are in place to ensure such policies are clear and in plain language, but complaints are still pouring into consumer protection groups regarding these policies.
The basic advice here is to be very careful if opting for expensive insurance policies. Make sure you understand the terms and think they might benefit you, and if you don’t want the policy, say no.