09 Aug Loan Insurance: A Newcomer’s Roadmap to Success
Loan insurance is insurance that protects you should you not be able to pay back your loan in the case of unforeseen circumstances like job loss, disability, or death. It can cover all or a portion of your loan repayment, acting as a safety net.
It provides peace of mind, financial security, credit score protection, and flexibility. Moreover, it protects the lender’s investment against defaults, simplifies their default recovery process, and can generate more revenue from premium payments.
In this guide, we’ll walk you through the benefits of loan insurance, how it works, and how to shop for the most beneficial loan insurance befitting your loan.
How Loan Insurance Works
Loan or credit insurance typically covers unforeseen adverse events like job loss, disability, or death. First, you’ll purchase a policy after carefully reviewing its terms. Often, it’s offered as an additional add-on to your initial loan. Taking out credit insurance is compulsory for debtors in South Africa.
After you’ve decided on insurance, you’ll pay a monthly premium or lump sum to the insurer. The insurer racks up this monthly premium or uses the lump sum if you default. Think of it like a sort of piggy bank. Your insurance will cover specific events as outlined in the policy, usually unforeseen loss of income or disability. If you have to claim, the insurer will take on loan repayments on your behalf for a specified amount of time or in its entirety.
There are two types of credit insurance: credit life insurance, which covers payments in the event of your death, and credit disability insurance, which covers payments if you become disabled and unable to work.
The Benefits of Credit Insurance
There are numerous benefits to taking out credit insurance, including protecting your family in the case of debt, protection against job loss or disability, default prevention, and healthy credit score promotion. Sometimes, insurance can waive your premium if you become disabled or unable to pay premiums, but you should discuss this with your insurer.
How to Shop for Credit Insurance
Looking at different insurance is important for finding the lowest premiums. Remember that with insurance, the case is that you get what you pay for. The higher your premium is, the more coverage you’re likely to receive. Don’t limit yourself to the insurance offered by your lender.
Remember, your insurance should adequately cover the loan amount and event you’re preparing for–so disability, job loss, or death. Most people take out credit life insurance (covers death).
You should get quotes from multiple insurance providers to compare prices and coverage. Understand what events are covered and any exclusions, payment options, what affects the cost, and the steps involved in filing a claim. Also, be sure to evaluate the overall financial impact of the policy: how it affects your budget and whether its value outweighs its cost.
Take your time to make an informed decision, read reviews of insurers online, and if needed, consult a financial advisor. Credit insurance is mandatory for a reason–it protects you and your family against unexpected events and provides peace of mind.
If you’re considering taking out a loan, ask one of our consultants about the insurance we recommend. Our team are experts and have years of industry experience, so we can help you shop for insurance and pick the one most relevant to your lifestyle and financial circumstances.
Contact Need a Loan today! Let’s discuss your loan options and the coverage you should be taking out.