Loan Repayment Insurance

Loan repayment insurance can help a person maintain a certain standard of living, bypass some financial risk, and protect their family assets. Used as a shield against financial and physical calamities; such coverage can literally save a person's financial life. Safeguards, of all types, are available just in case something goes wrong. Life, health, and auto coverage are available in case of death, illness, or a car accident; respectively. Loan repayment insurance, which is also called payment protection insurance and loan protection insurance, is no different. Although rarely needed, if a person does need it and doesn't have it, they might end up ruining their financial lives.

Monthly debts increase monthly expenses and ultimately financial risk. Making minimum payments are easy enough for most people. Minimum monthly payments allow people to purchase necessities and most luxuries immediately and to pay for them over a long period of time. That's been the American way for many years. But, this system sometimes gives people a false sense of security. Those minimum payments on credit cards allow people to easily rack up thousands of dollars in debt without really realizing it. A person who is strong and healthy and works to maintain monthly obligations can easily overextend themselves if they are not careful about money. Loan repayment insurance is needed when those optimum conditions don't exist.

If a person becomes temporarily or permanently disabled and/or unable to work, in most cases they will lose a portion of or all of income. That's where loan repayment insurance comes in. The policy usually covers things like accidents, sickness, hospitalization, bankruptcy, death, and terminal illness. For example, if an accident occurs causing a loss of income, this protection would cover the payment for the period in which the income is decreased. If income was lost for one month, payment is made for only one month. And, if income is lost for nine months, the claim would last for nine months. Also, if the loss is permanent, the whole bill can be paid off.

In the mortgage industry, this type of indemnity is called mortgage protection insurance; not to be confused with private mortgage insurance or PMI. PMI is purchased by the borrower, but PMI only benefits the lender while, mortgage protection insurance is available for purchase to the borrower and the borrower is the beneficiary. When looking at insurance coverage at the time of a purchase one should consider the fact that the cost of loan repayment insurance is relatively low. Further, the cost of this type of coverage is justified if there is a situation when a claim must be filed. Particularly in the case of a mortgage; which is usually the highest monthly bill a person pays, a good plan is like the helping hand of a lifeguard in the open sea. When an individual is unable to pay because of any of the covered reasons, this safeguard kicks in.

Year after year people make their payments on time; never needing to file a claim against their loan repayment insurance. This also gives people a false sense of security. If one is wise, the optional loan payment coverage will be included on every purchase in which it is available, simply because you never know what will happen. "His lord said unto him, Well done, thou good and faithful servant: thou hast been faithful over a few things, I will make thee ruler over many things: enter thou into the joy of thy lord." (Matthew 25:21). The more time one is fortunate enough not to need coverage, the more likely they are to need it in the future.

In the unfortunate case where a claim needs to be filed, like with most policies, they would get in touch with their representative and file a claim. After the claim is properly processed, everything should work like clockwork. All bills that are covered should be promptly paid by the company by which they are insured. Whether it's needed for three months, a year, or the life of the loan, the loan repayment insurance will cover those payments. Since coverage is available, a person might want to consider optional coverage on mortgage, charge cards, and all credit card payments; as well. At the time of this writing, however, there is no insurance available to cover household utility bills.

Financial decisions are not always cut and dry. A good budget with a plan for contingencies is one of those things most people want, yet they don't always follow through on doing. Some people have the luxury of an emergency fund. Some have investments, stocks and bonds, and even Government Series E bonds. Lacking any of those items the purchase of loan repayment insurance is certainly a good contingency option. Actually, a good rule of thumb is to be able to live off of 70% of income. The other 30 percent is then available for investments and charity. Those investments could be CD's, stocks, bonds, or even equity into a start-up company. The charity could be a tithe at church, what is lent to a family member (which may never be paid back), or what is donated to fundraisers. It really makes since to put these contingencies into a family budget. Good cash flow management at the individual level is just like everything else. The more you practice, the better you get. Having this type of plan allows a person to be able to retain their standard of living, forego some financial risk, and protect their family assets.