Myths and Truths of Loan Insurance

Sometimes, banks, but also non-banks offer us voluntary insurance linked to the granting of a loan. Insurance policies have their advantages and disadvantages, which must be known before starting to hire them or not.

Myths and Truths of Loan Insurance

What is credit linked insurance?

In general, the insurance offered with personal loans can be of two types: payment protection insurance, which offers coverage in case of not being able to pay the loan due to disability, unemployment or other circumstances, and insurance of life, which would liquidate the loan in the event of the death of the holder. In this case they are more common in mortgage loans, for their longer term.

Insurance protects us in the event of a sudden, but has an added cost that must be considered. The price can vary depending on many variables, from the age and personal circumstances of the borrower (loan holder), to the amount of the loan itself or the term of the loan.

The insurance payment is made in installments, often added to the loan installment, although some entities allow it to be paid in full at the beginning or even to finance it together with the loan.

Is insurance suitable for my loan?

If the possibility is considered, it must be assessed, and there is no single or correct answer: it will depend on the circumstances. Obviously, taking out a loan without insurance is cheaper, but it adds some interesting coverage for possible contingencies that would leave a situation solved instead of creating an additional problem.

The cost is variable, it is usually expressed in terms similar to calculating a percentage of the loan amount, similar to an opening commission.

In the case of online loans, the situation is the same: even if it is not contracted through a bank, the same conditions apply and the insurance provides the coverage that is contracted.

It is advisable to compare loans with and without voluntary insurance. In a large and competitive market, the options are multiple. Statistics show that the tendency to take out voluntary insurance is much higher in the case of large amounts in loan, while, for mini credits or short-term loans, it is not profitable and the vast majority of people can save this additional cost.

A similar situation occurs with long-term loans , of several years, where there is a greater probability of unforeseen events or events that alter our ability to repay money. The objective is not to enter into default or default, because the cost of the loan shoots up, and that is where insurance comes into play.

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Roger molins Jerome P Allison ( LinkedIn )
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