This type of insurance is usually a one-off payment which the borrower makes when they take out the loan.
This type of insurance can be advantageous for borrowers as it increases the likelihood that loan applications will be approved. For example, if a borrower is unable to save for a house deposit, they may be able to pay a fee to the lender in exchange for a reduced deposit. Therefore, this form of insurance results in increased loans, especially to those who would not normally satisfy the lenders criteria.
To the borrower, the benefit of having this insurance is to cover the costs of the loan repayments when unexpected circumstances occur, such as being unable to work due to illness or injury. This avoids the borrower going into default because they cannot make the loan repayments.
This insurance is optional and can typically be purchased either when you apply for a personal loan or after the policy commences.
In some cases there may be strict time limits. Any person who may have a claim on a loan protection insurance policy should seek advice as soon as possible to ensure a claim is lodged within time.
You should always seek independent financial advice to decide whether this type of insurance is suitable for you.
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