With average credit card debt and non-mortgage debt on the rise in the UK, it is more important than ever for Brits to consider the benefits of short-term loan protection. Loan cover is one of a few types of short-term insurance protection that falls under the umbrella of payment protection insurance (PPI). It helps injured, ill, or forcefully unemployed people meet their monthly debt obligations in lieu of an income. Since the State removed itself from supporting borrowers faced with unemployment, it is up to consumers to protect themselves and their assets.
Typical loan protection plans cover either 1500 pounds of debt each month, or 75 per cent of the individuals normal monthly income, whichever is lower. While this does not necessarily provide for all of a person's monthly living needs, most can make up the difference from supplementary income, savings, or other insurance plans provided through their employer.
Loan protection is not designed to provide long-term benefits. Its advantages in terms of value are much greater for one to two year plans. Premiums rates can be as low as a few pounds per each hundred pounds of cover. Independent brokers usually offer premium rates that are 40 to 80 per cent lower than those offered by traditional institutional providers. Brokers also maintain a better reputation for ethical and fair business practices, and customer service and support.
In 2005, Citizen's Advice, a leading British consumer advocate group, submitted a super complaint to the Office of Fair Trading in support of many consumers. The complaints alleged several questionable business practices were being used by members of the PPI industry. Specifically, many high street banks and lenders were charged with selling products to customers that were ineligible to receive payouts from the plans. Retirees and part time employees do not receive protection under payment protection insurance as it is for full time employees that become unemployed.
Along with these unethical practices, others suggest that these institutions are not maintaining the interests of consumers. They often package the loan cover with mortgage or other loan products in order to enhance customer premiums. They typically charge much higher premium rates than independent brokers can provide.
The key for consumers is to become educated on their needs and to look to specialists for the most important cover. Recent surveys show that the typical Brit is either unfamiliar with the benefits of the protection, or even worse, some covered individuals do not even know that they are covered by the protection. People must take charge of their own situations and not rely on the State, or large providers to meet them.
Loan protection can prevent horrible financial burdens for people who do not have adequate savings. Ideally, one would never have to receive the benefits of protection. However, for a small premium rate charge by a broker, it is worth considering protecting one's financial security and the well-being of the household. This is perhaps one of the greatest investments an individual can make during his or her lifetime.
| Simon Burgess is Managing Director of the award-winning British Insurance, a specialist provider of loan protection. |
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