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Loan Protection Insurance - Explainer

Jade Finance provides advice, assistance and support to our customers across a range of insurance issues and our consultants are often asked about loan protection insurance.

We provide this general explanation in regard to loan protection insurance and invite you to direct specific questions to your Jade Finance consultant.

  • Loan protection insurance is a type of insurance policy which specifically covers your repayments on a specific loan should you be unable to make the payments due to clearly specified circumstances such as injury, illness, unemployment or death.
  • Many insurers offer this type of policy to provide policyholders with peace of mind and financial support in times of greatest need. Essentially, if you depend on your income to make your loan payments and you are unable to work and earn an income, the policy should be structured to cover your loan repayments.
  • Loan protection insurance is different from the security held by the lender over your loan. When you purchase a car, bike, caravan, boat, equipment or other asset, the lender will use the asset as collateral against the loan. If you default on your repayments, the lender has the right to repossess the asset to recoup what is owed to them.
  • Loan protection differs from income protection insurance as your loan protection insurance is specific to a specific loan. It is not designed to replace/reimburse you for your income but specifically to make the loan repayments for you. Income protection insurance is a policy to cover you for your income or a set amount of your income, should be unable to work. The money is paid directly to you for your purposes.
  • If you need to utilise your loan protection insurance, the insurer makes payments directly to the lender, not to you.
  • Premiums are individually calculated based on your personal circumstances and the type of loan. If you work part-time, on a casual basis or are self-employed, loan protection insurance policies may be problematic.
  • Premiums are paid monthly for the agreed insurance term.
  • Loan protection insurance is not required by law and not required by most lenders when you arrange finance or loans through Jade Finance. Your consultant can clarify this issue in regard to your individual loan application.
  • By definition and purpose, all insurance policies are risk-related. Deciding whether or not loan protection insurance is right for you is a personal decision which individuals should make in consultation with their advisors and by weighing up all factors.
  • Some more comprehensive policy types with a broader scope, such as income protection insurance, may offer better value and broader coverage than loan protection insurance for your purposes.

As with all financial decisions, you should investigate loan protection insurance carefully to ensure you understand all the details and can make a fully-informed decision.

For more information on loan protection insurance, speak with a Jade Finance Consultant. Call 1300 000 003

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