• If you are aware when you take out the policy that there is a possibility of unemployment or redundancy, or that you may be diagnosed with a medical condition that could prevent you from working, you won’t be covered.
• Never sign a loan insurance agreement without reading the small print. You need to be absolutely clear what cover you need and what cover it provides. If you find it doesn’t fit in with your needs, don’t take it. Remember it’s optional, even if they try to make you think it’s compulsory.
• The small print often seems to exclude most of the things you might claim for. For instance it often excludes many quite common illnesses. The companies rely on you not reading it.
• When you are taking out the loan itself, be very careful, and consider carefully at that point whether you actually require the loan insurance or not. In a survey, 24 out of 41 companies included the cost of loan insurance automatically without even asking the borrower. Once you have signed the loan agreement, it can be very difficult to cancel the insurance without cancelling the policy.
• If you feel the need of loan insurance, you may be better off taking out a standalone PPI (payment protection insurance) policy. These can be much better value than a policy that is tied to a specific loan. Ask your independent broker to help you find the best one.
• If you do decide to take out loan insurance, don’t pay with a single lump-sum payment. This will make it very hard for you to get a refund if you pay off your loan early. Pay with monthly premiums.

Always remember that the lenders are selling you insurance for their benefit, not yours. It can be useful, but you need to keep your eyes open to make sure you get the right product for your needs.