Payment cover is a type of insurance that protects your regular financial commitments in the event of a loss of income. This article explains the different types of payment cover that are available, along with some details about why each type may be useful. You should never take out an insurance policy without reading the small print on the policy document, so regardless of the sort of payment cover you decide to go with, make sure that you are fully aware of any exclusions or exceptions that may apply.
Payment cover is also often known as ASU cover, or Accident, Sickness and Unemployment cover, because these are the main reasons why you might suddenly lose your income, and therefore your ability to meet your monthly repayments and bill commitments. As you will see, there are different types of cover to insure you against different, individual financial commitments such as your mortgage or personal loan repayments, so you are not obliged to pay over the odds for cover that you do not need.
The first type of payment cover that is available is mortgage protection insurance. This is an agreement between you and the insurer that if you lose your income for one of the reasons stipulated in the policy document, the insurer will meet your mortgage repayments for you for a period of up to one year. It's possible that you can be covered for longer than that (for a higher premium), but 12 months is the standard length of time.
The second type of payment cover is loan protection insurance, and it doesn't take much to work out what this covers you for! If you have taken out a personal loan, whether a secured or unsecured loan, you will more than likely have agreed to pay back a set amount of money each month that includes some of the original debt and also some interest at the rate agreed between you and the lender.
If you lost your job and didn't have savings or alternative income to use for making these repayments, you would be in danger of struggling financially. Missing repayments on a loan damages your credit rating, making it much harder for you to borrow in the future. If you have taken out a secured loan, you have the added risk of potentially losing your house, since you have put it up as a guarantee against the loan. Loan payment cover would make your loan repayments for you for typically a year following your initial loss of income.
The third and most comprehensive type of payment cover is income protection insurance. This would pay you up to 100% of your income each month, enabling you to not only pay your mortgage and loan repayments but also your bills, children's school fees and any other regular expenses that you may have. Depending on the level of cover you require, this may be the most expensive type of payment cover that you could take out, but if you would suffer financial hardship should your income cease unexpectedly, this may well be a worthwhile investment.
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