Many people who need to apply for a loan often wonder if it is appropriate to also apply for a policy or insurance on it. In fact, having insurance for a loan allows you to protect yourself, the possible guarantor, but also and above all the bank that must provide the loan.
For example, sometimes unpleasant situations such as death, sudden economic difficulties that prevent the repayment of the loan, the loss of work, the invalidity following an accident or an illness can occur.
Repayment of the pre-established amount
In this case, the repayment of the pre-established amount through the payment of the installments can be called into question, therefore it is essential to have insurance for the loan to protect yourself.
In the event of one of the events described above, the insurance will ensure that the amount to be paid is covered so as not to create damage to the lender or the bank.
These events, in fact, can make it impossible to repay the installments due to unpredictable and difficult to manage situations.
Obviously, if any of the events described above should occur, it will be necessary to adequately document the situation in order to better manage the loan. For example, if a person were to get sick, it is necessary that he presents all the medical documentation that explains why he is unable to repay the loan.
Loan Insurance: Always Worth It?
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The fundamental thing to understand is that we must evaluate our situation well, but above all understand the reason why we should request insurance for a loan. It mainly serves to guarantee greater security in facing the expense of the monthly installments of the loan to be paid.
If we do not have real annual savings and we have no deposits, insurance becomes absolutely necessary in case we become bad payers.
Either way, it’s fair to know that insurance isn’t always cheap. For example, it is not when the loan requested by us is less than USD 6,000.
In fact, the costs for insurance are not small and it is not convenient to make them have a guarantee on a small loan. Otherwise, when the loan exceeds 6 thousand USD and the time for repayment of the loan in installments goes beyond two years and we feel that it is a great risk for us to be able to face the monthly installments, then having insurance on our loan will be really convenient.
Loan insurance: the various types
There are two types of insurance coverage associated with loans: CPI policies (credit coverage) and ancillary policies.
- Credit coverage policies protect the customer and the bank, in the sense that the credit holder has greater security to deal with the expenses and the installments themselves, while the bank (or another credit institution) is protected by possible customer insolvency, both for serious reasons of illness and for economic difficulties.
- The ancillary policies provide different types of coverage, for example, purchases of any kind, and allow the customer to be able to skip some installments of the loan in case he finds himself in difficulty.
Why request insurance for a loan
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The real reason why we need to apply for insurance for a loan is that it will pay off our debt in the event of certain specific conditions. For example:
- in the event of the death of the applicant
- in the event of invalidity of the applicant, whether total or partial
- if the applicant loses his job for more than two months
- if the applicant really has serious economic problems
- if for particular reasons the applicant should be unable to work for more than a year.
How to choose insurance for a loan
Loans, or loans, if you like, belong to the category of consumer credit, therefore all the rules belonging to insurance are in turn regulated by a particular decree.
The Credit Institute, whenever a customer requests a loan, will, therefore, be required to offer insurance on the financing requested and it is, however, its responsibility to offer as many offers as possible so that the customer can have a wide range of products in front of him.
We should not limit ourselves to information relating to a single credit institution, but it is better to get informed and calmly evaluate all the pros and cons (especially economic) of each individual offer.
It is advisable to speak both with the banks and with the insurances directly to understand which is the best insurance and if, in our case, it really pays to do it or find other solutions.
On the web you can find many comparisons between the best insurance on the market without moving from home, just read the websites of the various companies.
Obviously, being our right, we have the possibility to choose within ten days of applying for the loan without losing the possibility of accepting or not.
Loan insurance: factors to evaluate
If we are totally unaware of what insurance is and what factors to evaluate when choosing it, we must take the following points into consideration in order to always try to make the best choice for us and for our pockets.
To always evaluate the risks we are facing and therefore what the policy can or does not really cover, it is necessary to understand:
- if there is a recourse clause, or a “liability waiver” by the Bank or any credit institution which for some particular situations does not intend to cover damage and, consequently, the customer will be obliged to go to compensate him;
- if we can collect our premium for having compensated the installments in advance and to recover the sum that we had previously spent. The premium mentioned always varies according to the length of the loan and can be up to a maximum of 6.5% on the monthly payment.
There are several notes on each self-respecting contract: it is necessary to carefully read the management costs that concern the contract itself. In addition, you need to:
- always try to choose the policy with the lowest;
- try to avoid insurance with recourse because, in case we find ourselves in difficulty, the insurance could also make us pay the installments in advance.
These points should always be considered before continuing to accept insurance for a loan.