Are you covered on personal lending?

The boom in personal lending is worrying the Bank of England.

The rate at which people are taking out loans, maximising store credit cards and signing up for car finance is of increasing concern. A recent meeting of the Bank of England’s Financial Policy Committee warned that lending is growing rapidly, potentially posing a risk to the UK’s financial stability, and to households’ own financial wellbeing.

A large number of loans, mortgages and other liabilities that could materialise in the future are not covered by insurance, but they should be. Are all your borrowings covered?

Mortgages may be uncovered

Half of UK mortgage holders have no life insurance protection in place, according to a 2016 study by Scottish Widows. These statistics are remarkable. Mortgages are generally people's largest liability. If the main earner in a household dies, the surviving partner might find it impossible to keep making the mortgage repayments. That could mean having to sell the property to move into rented accommodation at a particularly difficult time.

Other loans and credit cards

If you have taken out a loan to buy a car or for some other purpose, it might be covered by payment protection insurance that would pay out if you were ill or lost your job. Check whether you have such cover and make sure it also provides life insurance.  If it is not your habit to clear credit card balances each month, then you should ask what will happen to any uncovered balance if you should become ill or die.

Contingent liabilities and business debts

You should not forget unseen liabilities that may occur. For example, what if you are a guarantor for a family member’s mortgage and they lose their job or their business fails? If you are self-employed then you will also need to remember your business debts. 

What type of protection do you require?

The objective is to make sure that your partner and children especially, but possibly other family members, are not left to deal with your debts if you should die suddenly or suffer from a life-threatening illness.

This is easily dealt with by simple ‘term insurance’. Term insurance is not necessarily expensive and can often be put in force without a medical examination. The cost of such cover naturally increases with age, so the sooner you are able to discuss your protection requirements with us the better.

Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it. Think carefully before securing other debts against your home.

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