Payment Insurance, Another Pain In The Neck?

Written By ipink edy on Tuesday, July 23, 2013 | 10:49 AM


Payment Protection Insurance

This is a policy which insures your payment, namely, covers your payments in the event that you, the borrower, may die or be unemployed, disabled or ill. This is a voluntary insurance that you hire to cover either the loan installments or the full balance.
In the event of the borrower's death, it should cover the whole balance and, on the other hand, should you be unemployed, it will cover one installment at a time, until you are employed again.

Only Mortgages?

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No, this type of insurance can cover any kind of payment, like credit cards and other lines of credit, although our concern here is for loans or mortgage payments. It feels awkward to pay for the prime when one is in good health, but as we usually say, "I'd rather not need it".

Now, The Difficult Question

Is there any connection between the lender and the insurance company? The answer is definitely not. The person who is entitled to request the insurance is the borrower, for his or her own security, not to protect the lender. Therefore, the lender has no say in this matter and, as some would even say, "I couldn't care less".

Anyway, my point is that lenders should not recommend taking the insurance from them, at all. It is the privilege of the borrower, to decide whether to take it or not and from whom. The lender's security lies in the very essence of the mortgage. He is entitled to repossess the property, so he will never need this insurance.

In Case Of Illness Or Unemployment

If you are self-employed, you may have the risk of falling ill and not being able to work for some time. Here the insurance will cover your mortgage payment alone, but at least you will not risk losing your home.

The first payment is made generally one month after the insurance company is notified and there is sufficient proof, as in the case of unemployment. As soon as the company checks your employment status, they will begin provisions to pay the following month.

Further Grievance

Just to think of the situation that might arise if the borrower should die, makes us realize that it would give the remaining family additional worries to their already painful situation.

The Only Snag

There is a downside to these policies, though. The prime percentages can be rather high. Of course they will vary according to the situation. They evaluate aspects like your state of health, the company you are working for or if you are self-employed and whether you already have a high debt to income ratio. These premiums may be recommendable, but sometimes unaffordable.

Remember

The Payment Protection Insurance can be hired as a product by itself, from any insurance company or broker. You can buy it from your lender if it is available, but if on the contrary, the lender insists on you taking his Payment Protection policy, be brave and, politely, say no.


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