

In another previous article we talked about loans and how it differs from credit. As we explained, a loan is an agreement between the lender, usually a financial institution, who lends an amount of money to a customer or borrower who undertakes to return the borrowed money within a stipulated period.
But, Who guarantees the lender that the borrower will return all the borrowed money?
And this is where payment protection insurance comes into play. EIn this post we will see what it is and what it is for.
Payment protection insurance is a product that is marketed in the insurance market whose purpose is to guarantee that, during the entire period of its validity, the debtor or borrower will pay the amounts derived from a loan, be it mortgage or of another nature. . This is a product that is offered as additional coverage from other insurance linked to the loan.
To give you a practical example, imagine that you have taken out a loan from a bank to pay a mortgage and buy real estate and suddenly find yourself without a job. It is a situation that anyone can face and that, unfortunately, many in the last year have lived, due to the Covid19 pandemic.
How many people have been affected by layoffs or are currently unemployed.
Well, when requesting a mortgage or a loan of any type, the ideal is to be cautious and think about insurance coverage such as this type of policy as a guarantee of the payment of a loan.
So, a payment protection insurance is an insurance that acts as a cover in the event that the insured person becomes unemployed or suffers temporary disability.
Usually this type of policy acts only in these two cases:
These are situations that cannot occur simultaneously and the insured can only make use of one of the two coverages and cannot choose the type of claim to be covered, but it is the policy that establishes the guarantee that operates according to the employment situation of the insured person.
Then, if the insured person suffers one of the two claims, that policy will guarantee the payment of a loan and will pay the loan instalments to the lending credit institution, while the aforementioned situation lasts. That is, the beneficiary of the loan is the credit institution creditor of the loan.
To give you a practical example, if you have requested a loan to pay for your new house and have added this type of policy, in case of being unemployed or temporarily disabled, your mortgage payments will continue to be paid, since the insurance will be made charge, during a certain time, to pay the mortgage payments that you have to pay.
Although the conditions differ depending on the entity with which the insurance is contracted and the user’s employment situation, generally the insurance takes care of the monthly loan or the percentage contracted for every 30 days that the insured remains in the situation of unemployment and/or temporary disability. The maximum limit of installments paid by the insurer is normally 12 consecutive months or three years when they are alternate.
It seems that among the insurance products, payment protection is one of the most expensive. Its cost depends on the coverage, exclusions, limits of payment by the insurer, etc. Among the factors that strongly influence the calculation of the premium’ (the price to be paid for the insurance) there are the following:
Premiums can be monthly or single premium. Insurance can be made for a term of 5 or 8 years.
When hiring an insurance payment protection it is important that you follow some tips we leave below:
It is very important that you receive prior information about what the insurance coverage will be based on your personal circumstances and in case of change in your employment situation.