What is loan protection insurance?
Loan protection insurance protects you financially if you suddenly find yourself unable to repay a loan.
It’s a type of income protection that’s designed to cover your loan repayments if you can’t work because you become ill or get injured, or if you’re made redundant involuntarily.
Sometimes known as loan payment protection insurance, it can cover various types of loans, including mortgages, car finance and credit cards.
How long can loan protection last for?
When you take out loan protection, you’ll need to choose how long you’d receive payments for if you were to make a claim:
Short-term loan protection
With this type of cover, you can receive monthly payments for up to 12 months. This can help cover a period when you need to recover from an illness or injury and can’t work, or while you’re looking for new employment. This type of policy is cheaper than long-term loan protection.
Long-term loan protection
This provides peace of mind that you’ll receive pay outs for longer, which might be useful for keeping up repayments for a loan like a mortgage. It can cover you up to retirement and will pay out if you have an accident or illness, but it won’t cover involuntary redundancy.
How does it work?
You can take out loan protection for several different types of debt, from mortgages and credit cards to personal loans.
Whereas payment protection insurance (PPI) is typically attached to one debt, you can use loan protection to pay off any type of debt you choose.
You’ll pay a monthly premium throughout the length of the policy and you can usually protect up to 70% of your gross annual income - but premiums will be higher the more you want to cover.
If you suddenly find yourself unable to work, or you lose your job (depending on the policy), loan protection insurance will give you tax-free monthly payments that can help to replace your income and pay your monthly outgoings.
What does loan protection insurance cover?
A loan protection insurance policy typically covers you against three main issues that could affect your ability to work:
If you had an accident and suffered an injury that meant you were signed off for several weeks or months, you could make a claim
An unexpected illness or surgery might mean you need to take a lot of time off. Your policy can help cover your loan repayments until you’re well enough to return to work
Do I need loan protection insurance?
This depends on your situation, the size of your loan and whether you’ve got any savings to fall back on.
You’ll need to weigh up the cost of the monthly premiums against whether you’d struggle to make the minimum loan repayments without your income.
It’s also a good idea to check what cover you have already. For example, some companies provide employees with income protection for illness or injury under certain circumstances.
However, if you’d be left with just statutory sick pay, it’s unlikely to stretch beyond paying for the basics. And this won’t give you any protection if you’re made redundant, so taking out loan protection might be worth considering.
How to get loan protection cover
It’s easy to get the right policy for your needs
Provide a few simple details
Including what type of policy you need, what loans you want to protect and how long you’d like cover for
We’ll show you quotes from a range of providers so you can compare and decide which one suits you best
Select your policy
Buy your cover online or speak to an expert adviser if you’d like more help
How much does it cost?
When you take out loan protection insurance, the cost of your monthly premiums will depend on a number of factors, including:
- How long you need cover
- Your age
- Your marital status
- Your lifestyle
- The type of job you have
- How much cover you’ll need
How to find cheap loan protection insurance
Take a look at what’s out there and don’t just choose the first policy you find. Instead, shop around and find one that suits your budget
Speak to an expert
If you’re not sure which policy to choose, you can speak to one of our experts who can help you find the best one for your needs
Check your policy
If you’ve already taken out cover, consider whether you’re now in a position to reduce it or cancel the policy completely
Choose the right cover
Although getting the highest level of cover can be tempting, it may not always be necessary. Reducing your cover amount can lower your premiums
Delay your payouts
Before claiming, you’ll need to be off work for a set number of days, lengthening this waiting period may reduce your monthly premiums
Prepare for the unexpected with loan protection insuranceGet quotes today
Frequently asked questions
When you take out loan protection, you’ll select how long you want the policy term to last - for example, you might want to match it to the term of your loan.
If you pay off the loan before the end of your loan protection policy, it’s worth contacting your provider to see whether you can end the arrangement early.
You may have to pay an exit fee, but this could save you money overall.
Some providers exclude self-employed workers or those on short-term contracts, but there are others that will supply cover - so check the terms and conditions before you buy.
When you’re self-employed you won’t receive sick pay, so loan protection can be a good way of providing a safety net enabling you to still make your repayments.
If the type of self-employed work you do is riskier (if you’re a construction worker, for example) you might need to pay more, but it’s worth shopping around to find the best deal.
Yes, all types of insurance give you a 14-day cooling off period to decide whether the policy is right for you or not.
If you change your mind during this period, you can cancel the policy without any obligation.
With most loan protection policies, you’ll have to wait a minimum of four weeks before the cover will start paying out.
Your premiums may be cheaper if you agree to a longer deferred period. And how long you’ll receive the payments for will depend on the terms and conditions of your policy.
Loan protection policies are usually designed for people aged between 18 and 59, so check the small print of your policy in case there are age restrictions.
Because there’s more chance of you becoming unwell or having an accident when you’re older, your age may mean you need to pay higher premiums.
Factors like your salary and type of employment can also affect the cost.