Loan insurance is usually a voluntary additional fee borne by the borrower. Some time ago companies used them only for loans for large sums. Currently, we can even insure payday loans. Is there any point in using this option?
What is loan insurance?
The most important thing for loan companies is the solvency of borrowers. Some companies offer loans against movable property, some require a ryrant, while others expect loan insurance. Depending on the offer, it may be forced or voluntary. The insurance consists of fees related to taking out the loan.
Taking a long-term loan for a high amount always involves some risk. By insuring it, we become a solvent customer for the loan company. It can also improve loan terms, especially for customers with low creditworthiness. Insurance may prove useful in the face of a sudden deterioration in the financial situation of the borrower. The agreement provides a list of random events that will guarantee the repayment of the insurer’s debt. This additional loan protection increases both the monthly repayments and the overall cost of the loan.
Random loan insurance – is it worth it?
Random accident loan insurance is beneficial for several reasons. It increases the credibility of the borrower’s solvency and ensures repayment security in the event of a household budget overrun. In the event of the client’s death, the insurance company will repay the debt without having to burden the deceased’s family.
Loan companies earn a living by receiving a commission from the insurer. This can also be beneficial for clients, as these commissions often replace the loan margins. Consent to insurance is one of the components of the contract. General insurance conditions can be found in a document called GTC, available on the lender’s website. The document should not contain too many exclusions, because loan insurance may turn out to be completely unprofitable investment.
Cost of loan insurance
The insurance amount is part of the non-interest loan costs that raise the APRC. Their overall height is limited by the Anti-Mortgage Act and currently they cannot exceed 25 percent. total loan amount and 30% this amount on an annual basis. The Act also gives you the chance to return part of the amount of insurance upon earlier repayment or withdrawal from the loan agreement. The amount of the insurance fee depends on several factors.
These include, for example, the amount of the loan, the repayment date, the borrower’s age and the extent of the situation to be secured. The latter include loss of health or life or dismissal and loss of creditworthiness. Depending on the contract, the insurance premium may be charged once on the loan amount or spread over monthly installments, thus increasing their amount. The overall cost depends on the lender and the rates of the insurance company that uses the services.
What to look for when insuring a loan?
Purchase of insurance does not mean the certainty of full repayment of debts by the insurer. Deciding on them is worth checking whether it will be taken in advance or whether it will be added to the monthly installments. In any case, it will increase the overall cost of the loan. All possible exclusions included in the contract are also relevant. In many cases, money can only be withdrawn partially.
Often, only when the borrower dies does the company ensure full repayment. However, if death was the result of suicide, then the obligation to settle the debt falls on the family of the deceased. An insurance company usually decides to repay only a certain number of installments if the borrower has lost his health. In addition, the contract may contain guidelines specifying when the illness is serious enough for the insurer to take over the debt repayment temporarily. The same happens if you lose your source of income.
The insurer determines the maximum number of installments paid for the client. He may also completely waive repayment if the borrower quits his job or is dismissed through his own fault. In addition, the borrower must be registered as unemployed.
Cancellation of loan insurance
In the case of companies requiring this additional fee, resignation is possible only on proof of having similar insurance. Even if the borrower has decided to insure the loan, he may withdraw from it during the term of the contract.
However, this is not a cost-effective solution. As a rule, it is associated with additional formalities, an increase in interest or the need to find a guarantor.