Is it worth insuring your loan against job loss?

By thoroughly analyzing what is loan insurance against job loss, we come to the conclusion that it is nothing but a policy that is offered by insurance companies or banks, addressed to entities that have liabilities in the form of credit.

In practice, what does credit insurance mean against job loss? This is a form of security that guarantees the entity liquidity in paying off its debts to the bank. Loan insurance against job loss protects the borrower when he is threatened by loss of income source and financial liquidity due to job loss.

Insurance against job loss means that if we do not have adequate financial means, the insurer repays the loan installments for us. The number of installments repaid by him depends on the provisions specified in the contract. Therefore, unemployment insurance is a very attractive form of protection and customers are happy to use it.

Mortgage insurance against job loss

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In practice, unemployment insurance is most often combined with a mortgage. Mortgage insurance against job loss takes a voluntary form.

However, banks can offer this insurance as part of a larger insurance package, which is part of a consolidation or mortgage loan, or as an independent product, it all depends on their offer.

If you have decided on a mortgage, unemployment insurance may be the best solution if you haven’t built up the so-called financial cushion that could constitute our financial reserves in the event of loss of income.

How does job loss insurance work?

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When looking at the mechanism of how unemployment loan insurance works, it is worth remembering that depending on the banking regulations, it can be used by people who are employed under an employment contract. Analyzing the concept of loan insurance against unemployment is collateral in the event of loss of employment.

When signing the contract, pay attention to the provisions, as insurance coverage may apply temporarily. Do most readers wonder what the unemployment insurance offers?

Such insurance consists of that after 30 days from the day on which we were dismissed from work, the insurer will start paying off the installments related to our credit obligation until we start a new job.

It is worth remembering that in most cases we will not receive insurance payments when we voluntarily quit our work. Therefore, termination of the employment contract by mutual agreement does not allow us to apply for payment of unemployment insurance benefit.

This benefit will also not be granted to the borrower who, when conducting a business activity, closes the company, which will result in the loss of his income.

How much is loan insurance against the loss of a job?

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How much does the loan insurance against loss of job cost depend on the bank’s offer, the terms of which are usually very different? However, in the case of cash or installment loans, insurance against loss of income can be very expensive.

Insurance coverage for loan repayment can reach 4-5% of the total loan value per annum. People who are wondering how much it costs to pay mortgage insurance against loss of job must take into account that hedging the risk of income loss is valued at 1-1.5% of the entire loan per annum, and even 3.25% of this amount for a period covering 4 years.

With this type of collateral, it is worth remembering that banking institutions are eager to reduce their customers’ margins and reduce the value of the commission for granting a mortgage, which is an additional simplification.

Payment of unemployment benefit

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If the insured meets all the conditions set out in the unemployment insurance contract, the insurer will take over the obligation to repay his credit obligations. Depending on the contract, this is usually a 12-month period. However, if the borrower does not find work during this time, he will have to start paying himself.

The amount of our credit installment may be an additional obstacle. If it is too high, for example for the amount of USD 8,000, then the policy may be too low to fully cover the installment of our liability.

However, this is not the rule. There is also a reverse situation, where the policy has been structured so that it will be possible not only to pay the loan installment but also to cover the costs associated with maintaining the property.

An important issue in insurance against job loss is the grace period. Depending on the provisions of the contract, this means that the policy will become effective only for some time after its conclusion.

As a rule, this period is from 60 to 90 days. If the borrower terminates his employment relationship before the grace period expires, he will not receive assistance in the form of repayment of loan installments.

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