Loan protection insurance – what is it and what does it cover?

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If you have borrowed funds to purchase an asset, such as a boat, car or caravan; you are likely to have been offered the option to protect yourself, your loan and your new purchase; with Loan Protection Insurance (LPI). There are many types of LPI available – including:

  1. Sickness & Accident

    This provides a level of coverage in the event you fall sick or become ill for an extended period of time; and you are unable to work and derive an income. It will cover the repayments on your loan for the time you are not working.

  2. Unemployment

    This will cover your repayments for a limited time if you lose your job through no fault of your own. Insurers have varied benefits, terms and policy requirements.

  3. Guaranteed Asset Protection / Financial Protection

    GAP / FPI Insurance covers you in the event you write off your vehicle in an accident and there is a shortfall on the payout of your loan. For example, your motor insurer may payout $ 15,000.00 but you still owe $ 20,000.00 to the Lender on your loan. The policy will pay the $5,000.00 depending on the cover selected.

  4. Tyre & Rim Insurance

    If you damage your tyres or rims the policy provides coverage for the cost to replace or repair them.

    It is important to understand what each policy covers when you discuss with your lender or broker. Insurers offering Loan Protection Insurance have varying policy benefits and exclusions, so it is important to read the PDS carefully and ensure the policy meets your requirements.

Brokers are generally not permitted to provide any Personal advice in relation to LPI products. They will provide you with the following information so you can make an informed decision:

  • Factual information on what the product covers.

  • Quote for the Product, so you know how much the premium will be. The premium is generally incorporated in to the loan although you may also have the option to pay the premium in instalments separate to the loan. This will likely save you interest in the long term.

  • Product Disclosure Statement (PDS) which details the product features, benefits and exclusions.

  • Financial Services Guide (FSG)

Loan Protection Insurances are not compulsory and are an optional purchase available to you at the time of purchase. They are not available to purchase after the loan has settled so it is important to make a fully, informed decision upfront before your loan settles.

The team at yesapproved.com.au are always available to help you with your queries relating to Loan Protection Insurance.

The information is intended to be of a general nature only. We do not accept any legal responsibility for any loss incurred as a result of reliance upon it – please make your own enquiries.

Any advice contained in this document has been prepared without taking into account your particular objectives, financial situation or needs. For that reason, before acting on the advice, you should consider the appropriateness of the advice having regard to your own objectives, financial situation and needs.

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