New research reveals that consumers who look beyond their high street loan provider of loan protection insurance could save well over 3,000 over five years on a 7,500 loan.
The research from specialist insurance website www.protection-insurance.com, which compares the cost of protecting a loan via the top 10 lenders, warns against the hard sell approach sometimes employed by these organisations.
Simon Burgess, spokesman for protection-insurance.com, says: “Lenders encourage their staff to sell loan protection insurance because their profit margins on the actual loans are small. Some banks are offering repayment terms that are only 1% to 1.5% above the base rate and by the time youve taken bad debts into consideration theres not much left for them by way of a return.
“In some cases bank staff are targeted to sell this cover and have the opportunity to earn a financial bonus from doing so. But the downside for the consumer is that this means that they can end up with a policy that is wildly uncompetitive and also of inferior quality.”
Burgess advises consumers to check that loan protection insurance has not been automatically included in the cost of the loan before signing an agreement, and if it has been included to make sure they understand exactly what they are covered for and how much it is going to cost.
Consumers should also work out what the benefit will be if they lose their job because they could be better off with an income protection policy than with loan protection.
If consumers discover they have been mis-sold a policy, they can complain to the company and may potentially have a case to take to the Financial Ombudsman Service.