Loan Payment Protection Insurance (LPPI) is a type of insurance policy that can help protect borrowers in the event of financial hardship, such as illness, injury, or job loss. The purpose of LPPI is to cover loan repayments if the borrower is unable to make the payments themselves. In this article, we will explore whether LPPI is a good buy for borrowers, and the factors that should be considered before purchasing this type of insurance.
What is Loan Payment Protection Insurance (LPPI)?
Loan Payment Protection Insurance is a type of insurance policy that provides financial protection to borrowers who are unable to make loan repayments due to unforeseen circumstances such as illness, injury, redundancy, or job loss. This insurance policy can help cover the loan repayments, and in some cases, the interest as well, for a specified period of time.
The policy covers different types of loans, including personal loans, credit cards, car loans, mortgages, and other types of loans. The policy will typically pay out in the event of the policyholder’s death, serious illness, disability, redundancy, or job loss.
How Does LPPI Work?
LPPI works by providing financial support to the borrower in the event of unexpected circumstances. When the policyholder is unable to make their loan repayments, they can make a claim on their LPPI policy, and the insurer will pay out a specified amount to cover the repayments.
The amount of coverage provided by the policy will depend on the policyholder’s circumstances and the terms of the policy. The coverage can be for a fixed amount or a percentage of the loan repayments.
In some cases, the policy may have a waiting period before it pays out, typically between 30 and 90 days. This waiting period is designed to ensure that the policyholder is genuinely unable to make the loan repayments due to the unforeseen circumstances.
Is LPPI a Good Buy?
Whether LPPI is a good buy for borrowers depends on various factors, including the borrower’s financial situation, the terms of the policy, and the cost of the insurance.
The primary benefit of LPPI is that it can provide peace of mind to borrowers, knowing that they are covered if they are unable to make their loan repayments due to unexpected circumstances. This can help reduce stress and anxiety associated with financial difficulties.
However, there are some drawbacks to LPPI that borrowers should be aware of before purchasing this type of insurance. One of the main concerns is the cost of the insurance, which can be significant. The cost of the insurance will depend on various factors, including the type of loan, the amount borrowed, the borrower’s age, and health status, and the duration of the policy.
The cost of LPPI can be high, and in some cases, it can be more expensive than the loan repayments themselves. Borrowers should consider whether the cost of the insurance is worth the benefits provided by the policy.
Another consideration is the terms and conditions of the policy. Borrowers should carefully read the policy documents to understand the circumstances under which the policy will pay out, the waiting period, and any exclusions or limitations on the coverage.
It is also essential to compare different LPPI policies from different insurance providers to find the best deal. Borrowers should consider the cost of the policy, the coverage provided, and the terms and conditions of the policy before making a decision.
LPPI is typically sold alongside the loan, but borrowers should be aware that they do not have to purchase LPPI from the same provider as the loan. It is often possible to find a better deal by shopping around and comparing policies from different insurers.
When is LPPI Most Useful?
LPPI can be most useful for borrowers who have a high level of debt and limited savings or income to cover loan repayments in the event of unexpected circumstances.
