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When you take out a loan, you likely have every intention of repaying it in full. But what if something should happen — say, a job loss, illness, or injury — that keeps you from fulfilling your obligation? That’s where loan protection insurance comes in.

Loan protection insurance, also known as credit insurance, is a type of insurance policy specifically designed to cover a borrower’s loan payments should they become unable to make them due to an unforeseen circumstance.

This type of coverage can provide peace of mind — and help protect your credit — in the event of the unexpected. But ​​it comes at a cost, and in some cases, it may not be necessary.

Read on for a closer look at loan insurance, including what it is, how it works, what may be excluded from coverage, and whether or not it’s worth buying.

Loan Protection Insurance Definition

Loan protection insurance is an insurance product that lenders sometimes offer borrowers with certain types of loans, including personal loans. Typically, the insurer will make the loan payments for a set period of time (or up to a predetermined amount) if the policyholder can’t keep up with the obligation because of a covered event.

For example, let’s say you take out a personal loan and opt to purchase credit insurance. If at some point during your repayment term, you lose your job, get into a car accident, or become hospitalized with a serious illness, the insurance can help ensure your debts are paid.


💡 Quick Tip: Before choosing a personal loan, ask about the lender’s fees: origination, prepayment, late fees, etc. One question can save you many dollars.

How Does Loan Protection Insurance Work on Personal Loans?

Personal loan protection insurance is specifically designed to keep a policyholder from defaulting on a personal loan in the event of a financial hardship. Should a covered event take place, the insurer agrees to step in and make payments on the loan for a set period of time, typically between 12 and 24 months.

Events that are often covered by personal loan insurance include:

•   Job loss

•   Sickness

•   Accidents

•   Death

What makes credit insurance unlike other types of insurance policies is that the payments go to the lender, not to the policyholder. Though you’re the one paying the premiums for credit insurance, the payout actually goes to your lender.

Recommended: What Happens If You Default on a Personal Loan?

What Does Loan Protection Insurance Cost?

The cost of loan protection insurance varies widely depending on the insurer, the coverage amount, the length of coverage, your age, the state you live in, and other factors. Typically, the cost is calculated as a percentage of the monthly loan payment, ranging from 1% to 5%. As a result, the larger the loan balance is, the more it costs to insure it.

If you’re considering loan protection insurance, you may want to compare the cost of the policy to other types of insurance — such as life insurance, disability insurance, or accident insurance — especially if these types of coverage are offered for free or at a subsidized rate through your employer.

One way you may be able to reduce the cost of loan protection insurance is to pay the premium in a single payment instead of rolling it into your monthly loan payments. Some credit insurers will offer a sizable discount if you’re willing to pay the full cost of the insurance up front and in full.

What Are the Benefits of Loan Protection Insurance?

Loan protection insurance isn’t necessarily the right fit for everyone, but it does offer some advantages (especially if the policy is reasonably priced). Here are some benefits to consider.

Credit Score

Should an unexpected hardship occur and you’re unable to make your loan payments, loan protection insurance would kick in and prevent you from missing payments or defaulting on the loan — and taking a hit to your credit.

Recommended: What Is Considered a Bad Credit Score?

Save Money

Maintaining a strong credit profile can pay off down the line by helping you qualify for loans with lower rates and better terms. This can help you save you money, and could make the cost of the credit insurance worthwhile. Plus, future employers and landlords may also look at and make decisions based on your credit in the future.

Peace of Mind

Having credit insurance takes some of the pressure off of loan repayment and gives you the comfort of knowing that, should something happen that makes you unable to pay your debt, you’ll be protected.


💡 Quick Tip: With lower fixed interest rates on loans of $5K to $100K, a SoFi personal loan for credit card debt can substantially decrease your monthly bills.

Risks of Having Loan Protection

One big downside to loan protection insurance is that you might end up paying for something you never use. Here are some other drawbacks to consider.

Cost

Loan protection insurance can be expensive compared to stand-alone disability and life insurance policies. It’s worth assessing what type of coverage you already have and comparing the cost of loan insurance to other types of coverage, such as supplemental disability or life insurance.

Coverage Limitations

There may be limitations on coverage that minimize how helpful the policy will actually be. For example, in some cases, a loan protection policy won’t cover a pre-existing illness or won’t kick in if you take on a part-time job or any freelance work after losing your job.

May Not Be Necessary

If your main concern is protecting your family from being liable for your debt should you become unable to pay, know that most loans that are only in your name (and don’t have a cosigner) cannot require your family to make your loan payment if you’re unable to. If you’re not worried about loan default (and potentially losing your assets to creditors), loan protection insurance may not be worth it.

Recommended: Am I Responsible for My Spouse’s Debt?

Common Reasons for Being Refused Loan Protection

Because there are different types of loan protection insurance, and policies can differ from one company to the next, it’s important to review the reasons your policy might not pay out when you make a claim. Here’s a look at some common reasons why claims can be refused.

Part-Time Employment

If you lose your job but take on part-time work to make ends meet, a credit insurance policy may not kick in, and you’ll still need to cover your loan payments.

Pre-Existing Medical Conditions

If you are unable to work because of an illness, injury, or other condition that existed before you purchased the policy, your claim could be refused. It’s important to be clear about which health conditions might not be covered under the policy before you sign up.

Short-Term Employment

If you lose your job because it was a short-term employment contract, you likely won’t qualify for a credit insurance payout, since the work was expected to end at that time.

Self-Employment

Self-employed workers might be able to make a claim if they become sick or disabled, for example, but not if they lose the work that provides their income.

>Being Able to Work Another Type of Job

Is Loan Protection Insurance Required?

Loan protection insurance is optional. It’s illegal for a lender to force you to buy the policy in exchange for approving your loan. If you’re securing your personal loan with collateral (a car or some other asset), you may be required to ensure that property, but you don’t have to insure it through the personal loan lender’s policy.

If you feel you were incorrectly told by a lender that because of the purpose of a loan you wouldn’t be approved unless you purchased loan protection insurance, you can submit a complaint to your state attorney general, state insurance commissioner, or the Federal Trade Commission.

Recommended: Does Loan Purpose Matter?

The Takeaway

Loan protection insurance offers borrowers a way to continue making their loan payments and protect their credit scores in the event of an unexpected financial hardship. You can find these policies for different types of lending products, including auto loans, mortgages, personal loans, and credit cards.

However, this protection comes at a cost, and some hardships are excluded from coverage. In many cases, short-term or long-term disability insurance policies can offer better, more cost-effective protection for an unexpected loss of income. So be sure to do your research and read the fine print on all costs and exclusions before you agree to loan protection insurance.

SoFi personal loans offer competitive fixed rates and same-day funding. Checking your rate takes just a minute.

FAQ

Can you get protection on a personal loan?

Yes. Loan protection insurance is available for several different kinds of loans, including personal loans. Some lenders also offer their own hardship assistance programs for borrowers who run into trouble making payments due to unexpected circumstances.

What is loan protection insurance?

Loan protection insurance is a type of insurance that is designed to help protect you from defaulting on a loan due to an emergency, loss of income, or unexpected change of circumstances. If a covered event (such as a job loss, accident, or illness) takes place, the insurance would make payments on the loan for a predetermined period of time.

Why should you get personal loan protection insurance?

Personal loan protection insurance can give you the peace of mind that, should you run into financial difficulty, you won’t default on your loan. Avoiding a loan default can help you avoid a host of other negative financial consequences, as well as damage to your credit. However, these policies can be costly and typically come with a number of exclusions. You may find that other types of insurance (such as disability or accident insurance) are more cost effective.

Photo credit: iStock/akinbostanci

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For millennia, humans have used precious metals such as silver as a way to barter and exchange value. And even in today’s modern economy, many people believe that there is room for investing in silver and other precious metals as a way to diversify their overall portfolio.

Investing in silver can come in many different ways, from buying stocks or mutual funds focused on precious metals to holding the actual silver metal yourself. Depending on how you are investing in silver, it can be considered a valuable hedge against inflation and one way to diversify your overall investment portfolio.

Why Is Silver Considered Valuable?

Silver is a type of alternative investment, in that it’s different from a conventional stock or other type of security. And similar to how those types of securities or investments hold value, silver does as well.

At its most basic, silver is valuable for the same reason that anything is considered “valuable” — because we as a society have decided that it is valuable. Silver has been used for making coins and jewelry since the early days of history, which is one reason that silver is considered valuable. Silver is also quite conductive, which means that it has uses in industry as well.

Silver has many of the same qualities as gold, which is why many investors have similarly looked for different ways to invest in precious metals.

Silver vs Gold

Silver and gold have both been used as currency and jewelry since nearly the beginning of human civilization. They are both considered valuable precious metals and useful for portfolio diversification and as an inflation hedge. Deciding whether to invest in gold or invest in silver is in some ways a personal choice, and many investors decide to invest in both.

💡 Quick Tip: While investing directly in alternative assets often requires high minimum amounts, investing in alts through a mutual fund or ETF generally involves a low minimum requirement, making them accessible to retail investors.

What Are the Advantages of Investing in Silver?

One of the biggest advantages of investing in silver is that it can help diversify your portfolio. The rate of return for silver and other precious metals is not always correlated with that of other investments, which means that it can be a useful form of portfolio diversification. Silver is also cheaper than gold on a per-ounce basis.

Many investors also consider investing in precious metals to be an inflation hedge – it’s commonly believed that precious metals like silver or gold hold their value more efficiently or for a longer-term than cash or other assets.

If you invest in actual physical silver, another advantage is that it is a hard asset — it cannot be hacked or erased. Silver and other precious metals are one of the few investments that you can actually hold in your hand. Unlike other investments, your holdings in silver can also be as private as you want them to be.

What Are the Potential Drawbacks?

One drawback of investing in silver is that its price is considered fairly volatile. That doesn’t make it a great investment if you are only holding for the short-term. Prices for precious metals can fluctuate wildly over the short-term, and even over the long-term, may not provide investors with the type of appreciation they may have seen if they had invested in other assets.

Further, if you hold physical silver, you do run the risk of having it stolen. Unlike digital assets, physical silver may not be recoverable if it is lost or stolen. As such, if you are buying physical silver coins or bars, you will need to find a safe and secure way to store them.

💡 Quick Tip: Look for an online brokerage with low trading commissions as well as no account minimum. Higher fees can cut into investment returns over time.

Is Silver an Inflation Hedge?

As noted, investing in precious metals is often considered an inflation hedge.

Inflation is a natural phenomenon that gradually increases the cost of many goods and services. Silver has many uses – it can be used to mint coins, for instance, and be used as an actual currency, or be incorporated into other products. For that reason, it may hold its value more effectively than cash or other assets.

But there’s no guarantee that silver will always be an effective inflation hedge, and it’s important to remember that it’s a volatile asset.

How Can I Invest in Silver?

There are a number of different ways to invest in silver, depending on what you’re looking for in your portfolio. One popular way to invest in silver is by buying physical bars or coins of silver. Another possible way to invest in silver is by investing in the stocks of silver mining companies.

Silver Funds

It may also be possible to invest in silver using various types of funds, such as exchange traded funds (ETFs) that own silver or silver mining companies. There may also be options for investors to invest in mutual funds with concentrations in the silver industry or market, too – doing a bit of research to see what your options are in relation to silver investments is likely to yield results.

The Takeaway

Investing in silver offers investors a way to add an alternative asset to their portfolio, which can help them diversify, and hedge against inflation. There are many ways to invest in silver — including investing in silver mining companies, silver ETFs or owning physical silver like coins or silver bullion.

But investing in silver has its risks, and investing in precious metals typically means investors are okay with adding a relatively volatile asset to their portfolios. As always, if you have questions, it may be a good idea to speak with a financial professional.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

FAQ

Does owning silver diversify your portfolio?

Depending on the composition of your investment portfolio, owning silver can diversify your portfolio. Silver and other precious metals are often considered an inflation hedge, meaning that their price generally holds its value, regardless of the inflation rate. The rate of return on investing in silver and other precious metals is also not often correlated with returns of other types of investments, like the stock market or real estate.

Will the price of silver always go up?

Like all investments, there is no guarantee that the price of silver will always go up. The price of silver can fluctuate wildly, which means that depending on when you buy and/or sell, you may lose money. Before investing in silver, make sure you understand the risks and drawbacks of silver investing.

What are some alternative metals to silver?

Probably the most popular alternative precious metal to silver is gold. Like silver, gold has been used in currency and jewelry for most of the length of human civilization. Other options for investing in precious metals if you’d rather not own gold or silver are platinum or titanium.

Photo credit: iStock/oatawa

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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.


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