By taking out a loan, you are committing to repaying back the lender over a set period of time. The repayments you make include both principal and interest components. But what happens if you are unable to make these repayments because you have suffered a life event, such as becoming involuntarily unemployed or being struck down with illness leaving you unable to work . How would this shape your personal budget? Do you have savings to cover the repayments?

Lenders would likely provide a period of relief in the event of such an unforeseen circumstance arising. But this is not a permanent fix and it does have the potential to affect your credit rating, especially now with Comprehensive Credit Reporting; which details the history of your loan for all lenders to see.

Loan Protection Insurance (LPI) is an optional product you can purchase at the inception of your loan, and the premium is generally capitalised in to the loan. LPI provides you with some peace of mind, by covering your repayments for a period of time in the event of a covered event. This gives you the breathing space in your budget while you recover from your illness or find yourself new employment.

There are different forms of Loan Protection Insurance which are detailed below.

Financial Protection Insurance:

If during the Period of Insurance you become sick, injured or ill, or unemployed as a result of you being made redundant, retrenched, or your employer ceasing to operate; and you are unable to perform your Employment for a period of greater than 21 days, then the Insurer will provide you with options to repay the loan.

Firstly you may receive a Payment Assist Benefit where you choose to Handback your Vehicle to a Dealer. If you experience a Shortfall as a result of the Handback, then the Insurer will pay the Shortfall to the Financier. You may choose to use the Payment Assist Benefit as an alternative to Handback of the Vehicle to contribute towards your Monthly Repayments under your Finance Contract, allowing you to retain your Vehicle.

For more information on these products, please read the Insurers Product Disclosure Statement (PDS).

Equity Protection Insurance

If, during the Period of Insurance, the Vehicle is declared a Total Loss by a Comprehensive Vehicle Insurer then, the Insurer will pay to you (or the Financier if applicable) the Shortfall:

In the event of a Total Loss settlement by your Comprehensive Vehicle Insurer, you can lodge a claim for out of pocket expenses directly incurred as a result of the Total Loss.

For more information on this product, please read the Insurers Product Disclosure Statement (PDS).

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