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The purpose of Loan Payment Protection Insurance is to ensure that your loan repayments are maintained if you are off work through accident, sickness or unemployment. If your loan is secured, it is particularly important to consider this sort of insurance as, if you fail to maintain your loan repayments, your home could be at risk.
But as with all types of insurance there are circumstances where you cannot claim. Common exclusions are where you became voluntarily unemployed or if you are off work through "back pain". There are always many circumstances under which you cannot make a valid claim, so before you buy the insurance, carefully read the policy's exclusions and decide whether it is worthwhile insuring yourself.
You should always buy Loan Payment Protection Insurance separately to the loan itself. Then, if you subsequently decide that you do not want to continue with the cover, all you do is contact your insurer and cancel your direct debit. What's more, besides being far more flexible, a standalone Loan Payment Protection Insurance policy is the cheapest way to buy this sort of insurance cover.
When you take out a loan, the odds are that the lender will offer you Loan Payment Protection Insurance as this sort of insurance represents a major source of additional profit for them. If you accept their offer, it is likely that the lender will calculate the cost of the insurance to cover the full term of the loan and then add the cost to the sum of money you borrow. Therefore, in practice, the value of your loan is the money you borrow plus the full cost of the insurance. In these circumstances you cannot cancel the insurance as you have already paid for it in full. And it will be much more expensive than a stand alone policy!
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