Financial Literacy Understanding Basic Terms
20 March, 2018, 12:00 am
What is loan protection insurance?
Simply put, this is an insurance policy. An insurance policy is a contract between you and an insurance company. It protects you against financial loss because of specific events such as property damage, redundancy, accident and death. In return for this protection, you pay money to the insurer (a premium). The aim of getting insurance is to put you back in the financial position you enjoyed before your loss occurred.
Insurance is often viewed as a necessary expense, like tax. We may not like paying it, but we know we need to if we want the benefits it provides. We all know life happens and if you are forced out of work and not earning or are financially stressed for other reasons, insurance is fantastic.
Unfortunately, it is often not until you need to make a claim that you value the importance of insurance. Certain financial institutions in Fiji offer a consumer protection insurance protection from an insurer that covers the borrower against certain events of risk. The events are bankruptcy, accident, terminal illness, disablement and death.
These risks are real and happen to people every day. If you are off work for three days with a head cold, you are not covered and cannot make a claim. But imagine breaking your ankle and not being able to drive for six months. This is not good news for a self-employed truck driver owing a responsible lender over a $1000 in loan payments per month!
The insurance provides the payment to the lender on the truck drivers behalf until he gets back to work. Or, you are involved in an accident and disabled for a lengthy period. Do you really want to be out of work not earning, but having to use your savings to pay back that loan? Not really.
Claim against the insurance policy you took out at the beginning of the loan for a low monthly premium. Shop around the various loan providers to make sure you are getting the best deal.