Before taking out a loan, you probably have a plan in place for how you will pay it off, but sometimes in life, things do not go according to plan. Dozens of things can go wrong – you might lose your job, fall sick or have an emergency come up that will affect your repayment plans.
When things like these happen, it can slowly and surely cause you to spiral into debt, which is why most people opt to take out loan protection. Loan protection insurance or mortgage insurance allows you to continue paying off your loan even when you find yourself in financial difficulties.
While the conditions for loan protection insurance vary from provider to provider and just like life insurance are based on your age, health and life expectancy, taking out a policy will definitely pay off should things go wrong in the future.
Benefits of loan protection insurance
- Boosts credit score –
It is common knowledge that your credit score plays a huge role in the approval of your loan application. If you have a poor credit score, you may find it difficult getting loan or mortgage approval. But with loan protection insurance, the lender knows that you will be able to keep up to date with your regular loan payments and this can tilt things considerably in your favour. This also means that you can always maintain a favourable credit score even in times of financial crisis, a condition that would help you should you need credit facility in future.
- Helps in case of serious illness or accident
If you fall seriously ill or you are involved in an accident, you may be unable to work and this can affect your ability to meet your loan responsibilities. However, if you had the foresight to invest in loan protection insurance, you can make a claim for financial assistance to meet your loan repayment responsibilities until the loan is paid up or until you are able to go back to work. Note however, that the assistance is based on the type of policy you took out, but at least you will be able to keep your end of the bargain and not go into debt.
- Involuntary unemployment –
If you lose your job while a loan in still active, loan protection insurance will make sure that you are able to make your payments when due. This can be really helpful as you can channel your energies into looking for a new job rather than wondering where the cash for the next payment will come from. Loan protection insurance does not cover for when you resign or are made to quit voluntarily.
- Sudden death –
No one wants to leave their family with debt at death which is why some loan protection insurance policies cover the balance of your loan if you pass away suddenly. This can be a huge relief to families who may not have the means to make the payments at the death of the breadwinner.
No one likes to think that things can go wrong, but having a plan in place is the best way to prepare for when something unexpected affects you financially. Using a finance tracking app can help to give you an overview where savings can be made for a rainy day fund, but having the peace of mind that comes with loan protection insurance will go a long way to helping you stay on top of your finances.