Payment Protection

Payment Protection insurance is one way for borrowers to ensure that their loans don’t become financial burdens. It is important to use Payment protection to supplement any other life or disability insurance you may carry. Most short-term benefit plans cover only 60 percent of take-home pay for not more than 6 months. While Social Security provides long-term disability benefits, they have a waiting period of about 6 months and are capped at a portion of normal take-home pay.

Life and Disability Insurance

Also called Credit Insurance, Payment Protection includes two types of insurance -- Credit Life and Credit Disability insurance. Credit Life insurance is designed to pay off the uninsured balance on your loan in case of death. Credit Disability insurance pays off your loan in the case of inability to work due to disability or illness.

What is not covered

Payment Protection, in some cases, may not cover any illness that you are already aware of at the time the loan starts or for which you have consulted a doctor for as long as a year. Unemployment that arises in a short period of loan obtainment, such as within two months, is usually not covered by Payment Protection. Also, if you choose to work abroad or voluntarily become unemployed, payment protection may not be valid.

Simple and Affordable

Premiums for Payment Protection insurance usually result in affordable, monthly premiums. They are established by the state and the rates depend on location, the amount of your loan and the kind of coverage you require. Application is easy and is done at the time of loan application. The loan protection plan premiums can be paid along with the loan payments or as a lump sum at the beginning.

Protection is optional

Payment protection is usually not required on loans, though lenders do require some form of insurance as additional security. In that case you can provide any kind of coverage that is acceptable to the lender.