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What Is Personal Loan Protection Insurance & Is It Worth It?
●March 19, 2021●5 minute read
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Personal loans can be used for a variety of purposes and can allow purchases that otherwise would not be possible due to cash insufficiency. These loans usually accompany a number of fees and are required to be paid off in a certain timeframe. What happens if you become unable to make your loan repayments? This is what personal loan protection insurance is used for.
What is personal loan protection insurance?
Personal loan protection insurance is a type of protection that covers you if you are unable to make your loan repayments. Whether you become ill or injured, unemployed or in any other relevant circumstances, personal loan protection insurance ensures that you will not be left with no way to repay your loan. This insurance is completely optional and can be purchased either upon your loan application or when your loan commences.
What can personal loan protection insurance be used to cover?
There are a variety of situations in which you could be protected by personal loan protection insurance.
Illness or injury
If you become sick or sustain a serious injury, your policy may cover your loan repayments for a certain period of time, either until it is paid off or you go back to work. Check your policy to see if there is a waiting period for your cover to roll in or if there are other exclusions that may apply, including pre-existing conditions.
If you are involuntarily unemployed, you may be able to claim for your loan repayments to be covered. Check your policy to see if there are any requirements around contract or seasonal work. Personal loan protection insurance usually does not cover you if you quit or if you have accepted a redundancy package.
Some plans will cover your loan if you pass away. You should refer to your policy to check for any exclusions, as well as what the maximum payout is.
What is not covered under personal loan protection?
Most insurance providers do not cover some instances. These situations may include:
- Being unemployed due to seasonal or contracting work
- Being unable to work due to a pre-existing condition
- Working less than a certain quota of hours at the time your loan commences
- Resigning from your job, retiring or accepting a redundancy package
- Self-inflicted injury
- Childbirth or pregnancy
- If sickness occurs within a certain number of days since the commencement of your policy
How much is personal loan protection insurance?
There are a range of factors considered when calculating the cost of your insurance policy. These can include:
- The type and features you choose. Whether you are opting for protection from sickness and injury, unemployment or loss of life, each of these options comes with different fees and charges.
- Your loan amount and terms. Typically, the larger your loan, the more expensive your insurance cover. However, this may vary depending on your selected lender.
- Single vs joint policy. Depending on whether you choose a single or joint policy may incur different charges
- Repayment amounts. Your premium will depend on how much your loan repayments are.
- Your age. Your policy options may vary depending on how old you are.
What is the difference between personal loan protection and income protection?
Income protection insurance is used to pay out a certain amount if you are unable to work due to sickness or injury. Rather than just covering your loan repayments, income protection can cover the costs of groceries, water or electricity bills, or any other expenses you are no longer able to cover. Usually, loan protection insurance pays the amount directly to the lender and not to you, whereas income protection is paid out to you. Personal loan protection insurance can also only be used to cover your loan, whereas income protection covers any costs you cannot cover.
Additionally, you may be able to access income protection through your superannuation, and you must access personal loan protection insurance through an insurance provider or other lender.
What are the benefits of personal loan protection insurance?
There are a few key benefits to personal loan protection insurance.
- Peace of mind. If you are unable to work, you will not need to stress about making your loan repayments.
- Maintain your credit rating. If you are unable to repay your loan for whatever reason, defaults may be put on your credit report. Your insurance will protect you from this if you were unable to make your repayments.
What to look out for when getting personal loan protection insurance
Before you decide on taking out personal loan protection insurance, it is important to decide whether this is right for you. You may wish to ask yourself these questions:
- Will you get value for your money? Personal loan protection insurance costs money, so will you reap benefits from spending this money?
- Are there options elsewhere? Consider whether income insurance may be more suitable or, if you have life insurance, whether this would cover you instead of personal loan protection insurance.
- Are there going to be exclusions for pre-existing conditions? If you have a pre-existing condition that may stop you from working, will personal loan protection insurance cover you?
Personal loans from Jacaranda Finance
Overall, deciding on personal loan protection insurance will come down to your own individual circumstances. You may wish to investigate other options, including income protection insurance, further before deciding whether personal loan protection insurance is right for you.
While we do not offer personal loan protection insurance, we do offer affordable personal loans with flexible repayment terms. We offer quick loans from $300 to $10,000 for eligible applicants. We are one of Australia’s fastest online lenders; we delivered the first 60-second payout nationwide! When you need cash fast, Jacaranda Finance may have a loan to suit you.
If you are unable to repay your loan due to COVID-19, here are some options you may wish to consider.
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Written by Jacaranda Team