What is Loan Insurance and Do I Need it?

If you are unsure of your ability to repay a loan you may want to consider loan insurance. When you first get a loan you can be very confident in your ability to make payments on time and to see the loan through to its end. However, there are a number of things that can happen, and many of them may be beyond your control and occur in a surprising manner catching you with your guard down. It is from these unexpected circumstances that loan insurance will protect you.

Defaulting on a secured loan will cause you to lose whatever collateral you have put up as assurance for the lender. Defaulting on an unsecured loan can result in massive penalties and even lawsuits. Of course defaulting on any type of loan is recorded on your credit report and harms your credit score making all future attempts for a loan very difficult if not impossible.

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The three major types of loan insurance will protect you from defaulting on your loan in many circumstances including ones that are beyond your control. It is not really that expensive. If you consider the consequences you will face if your loan goes into default the price of loan insurance is very affordable. The cost of loan insurance is set in relation to the amount of the loan balance at the time of purchase. State laws usually determine the extent of coverage. Premiums can vary greatly depending on what type of coverage you have purchased.

If the loan holder dies a family member can be held liable for the balance of the loan. Death insurance covers this. One of the more popular types of loan insurance is disability coverage which covers your monthly payments up to the amount as stated in the agreement in the even the loan holder becomes injured or disabled. This type of insurance also provides a cash payment to help with living expenses. In the even that the loan holder is laid off or becomes unemployed for one reason or another, involuntary unemployment coverage will cover the monthly payments until the agreed upon amount is reached.

When you borrow money there is always a risk. Many can be avoided by operating in a smart and prudent manner while other risks are simply unavoidable due to uncontrolled circumstances such as a sudden death, unexpected unemployment, and disability due to injury or other medical conditions. With loan insurance you can be sure that in any of these circumstances your credit score is not damaged and that you will have a little extra time to put things back into order.

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