In order to decide whether you should take out payment protection with your loan, you need to fully understand what payment protection offers and how it works. You then need to consider how appropriate it is for your personal situation. To do this, the following article provides you with instructions for your assistants, but it's a good idea to read all protection policies carefully, as each will differ in the coverage they offer and the exclusions they make.
Loan repayment protection cover is sometimes also referred to as PPP (Payment Protection Plan) and ASU (Accident, Sickness and Unemployment Benefits). Insurance cover can provide insurance against loss of earnings due to accident, illness, hospitalization, disability, redundancy and life insurance. Each policy will vary in the collection of each of these events, so please read the policy booklet carefully. You should also note the following;
Eligibility
Make sure you qualify for the policy because if you don't, and you take out the policy it won't pay if you make a claim even if you have paid the premiums. Most policies have eligibility rules based on age, how many hours a week you work and how long you have been in your job and what type of employment contract you are working under.
Grace periods
These are periods of time even after, for example, dismissal, during which the insurance does not pay out. The usual grace period can be 6 months. In general, the longer the grace period, the cheaper the policy. This is because the provider has recognized that during the grace period the customer may get another job and return to work, so the chance of making a claim is reduced. However, if the grace period is effectively tailored to an individual's circumstances, cover can provide a very cost-effective option. For example, if you are paid in full for the first six months of unemployment while you are sick, then the six-month term policy would kick in as soon as your employer reduces or ends your sick leave. Policies without any grace period are called first day policies because they come into effect on the first day the specified event occurs.
Grace period and waiting periods
The two should not be confused. The waiting time is the time required to wait for the provider to process the claim. The typical waiting time is 28 days. These are introduced for administrative purposes to prevent claims after a day or two of illness. However, it does not affect when the policy pays out. For example, a day one policy with a 28-day waiting period will mean that the provider will start processing a claim after 28 days, but will return benefits from the first day the said event occurred or began.
Premium Waiver
This means you don't have to pay a monthly payment protection premium when you're making a claim (when you're not at work). These sometimes have a maximum time for which it is available. This option also usually comes with an additional premium on its own!
Exclusions
Care should be taken when reading this section of the policy brochure, as policies vary dramatically. However, there are some common exceptions, such as pre-existing conditions. If you have any pre-existing conditions or complaints for which you have seen a doctor, you should find out exactly what your policy defines as pre-existing. Some policies may define this as a condition you have consulted a doctor about in the 12 months prior to taking out the policy, some go further. Also, if you've been in the clear recently, you should find out if your policy will pay out if the condition reoccurs in the future.
Cash back
Some policies offer money back options for not making a claim after a certain period of time. You should be aware that most of these policies carry terms and conditions, which usually include a certain period of time for which you must hold the policy.
Loan repayment protection and income protection policies
Loan repayment protection is usually specific to the loan itself in that it will pay off the monthly loan payment. Income protection policies pay a percentage of your income. Although an income protection policy can cover 100% of income, most offer below this amount and therefore may not be enough to cover the additional loan you are considering.
Policy advice provided
If the person or business selling the protection policy is authorized and regulated by the Financial Services Authority to provide payment protection, they should offer you one of two levels of service.
The first is full advice and recommendations. Here, the advisor will assess all your individual circumstances and existing coverage and advise and recommend a suitable product based on this.
The second is information only, where information is provided about the policy or the various policies offered and you as the consumer can decide for yourself whether it is right for you.
The person or company should be clear about the level of service they intend to offer you before they sell you this policy.
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