Taking out a loan can be a necessary part of life in order to achieve certain goals or handle unforeseen circumstances. However, it also comes with some risks that can create financial stress or setbacks.

One way to mitigate these risks is by insuring your loan, a smart choice for financial security.

What is loan insurance?

Loan insurance, also known as loan protection or payment protection insurance, is an insurance policy that covers the borrower against default or inability to make loan payments due to unforeseen circumstances such as illness, injury, or job loss.

It provides a safety net for borrowers to ensure they won’t default on their loans and suffer from serious financial consequences.

Types of loan insurance

There are several types of loan insurance available to borrowers, including:.

Credit life insurance

Credit life insurance pays off the remaining balance of a loan if the borrower dies before the loan is fully repaid.

It provides peace of mind for borrowers who want to ensure their loved ones won’t be burdened with loan repayments in case of their premature death.

Credit disability insurance

Credit disability insurance covers loan payments in case the borrower becomes disabled due to an illness or injury and can’t work to earn enough money to repay the loan.

It can be especially important for those who have physically demanding jobs or rely on their physical abilities to earn a living.

Credit unemployment insurance

Credit unemployment insurance covers loan payments in case the borrower loses their job and can’t afford to make the loan repayments. It can help prevent default and damage to credit scores, which can have long-term consequences.

Benefits of loan insurance

The main benefit of loan insurance is financial security. By paying a small premium, borrowers can ensure they won’t suffer serious financial consequences if they become unable to make loan payments due to unexpected circumstances.

Other benefits of loan insurance include:.

Peace of mind for borrowers and their families
Protection against default and damage to credit scores
No medical exams or health questions required in most cases
Flexible payment options that can be added to monthly loan payments

Things to consider when choosing loan insurance

When choosing loan insurance, there are several things to consider:.

Coverage

Make sure you understand what’s covered and what’s not. Read the policy carefully and ask questions if anything is unclear.

Premiums

Compare premiums from different insurers and choose the one that offers the best value for money. However, don’t choose a policy based solely on price. The cheapest policy may not offer the best coverage or service.

Exclusions

Make sure you understand the exclusions, or circumstances under which the insurance won’t pay out. For example, some policies may not cover pre-existing health conditions, or may have waiting periods before coverage begins.

Claims process

Make sure you understand the claims process and how to file a claim if necessary. Some policies may require supporting documentation, such as a doctor’s note or proof of job loss.