Loan Termination Insurance (“LTI”) is a form of Consumer Credit Insurance, which may help meet your finance obligations if certain unfortunate circumstances arise throughout your loan term.
When entering into a finance arrangement, it is hard to know what could happen throughout your loan term, as some loans go up to 7 years and a lot could happen in that time.
No-one expects to fall ill, lose their job, or become disabled, so that they are unable to earn their normal income.
Prior to entering into your finance contract, you would most likely be calculating what your own personal budget in regards to car loan repayments are based on the level of income, you are earning at that time.
So what happens if you are in the situation where you cannot earn the income you initially budgeted for, due to unexpected events that were out of your control?
LTI is an optional loan protection insurance that can be added to your finance package to assist if certain unfortunate circumstances arose.
If you lost your job through involuntary unemployment, such as a redundancy, or were disabled and were unable to work, LTI would make up to 3 monthly loan repayments, which would give you some breathing space in order to find a new job, or get well in order to return to your normal work.
If you were still unable to return to the workforce, you would still have the option to sell your car to payout your loan, so that your credit worthiness stays protected. Quite often the sale price of your car would not payout your loan in full, so the LTI will cover the shortfall up to a certain amount dependent on the level of cover in your policy.
This option would be referred to as a hand back option in the Product Disclosure Statement, and you can also elect to use the hand back option if the following other situations occurred:-
• Trauma (i.e. cancer, carcinoma, chronic kidney failure, coronary artery by-pass surgery, heart attack, major organ transplant, stroke)
• Disability (a condition where you are incapable of performing your normal duties for no less than 60 days)
• Driving Restrictive Medical Condition
• Involuntary Unemployment (due to no fault of your own)
• International Job Transfer
• Personal Bankruptcy
No-one can anticipate any of the above occurring throughout your loan term, so an LTI policy can give you some level of protection if any of these events occurred and could make the burden easier to deal with, when you are already in a position of stress and worry.
Client’s most common objection is that they already have Income Protection, or Workers Compensation. In most cases, Income Protection and Workers Compensation will pay up to 75% of your normal income and may not include any additional income benefits from your normal job, such as the ability to work overtime, or bonuses, etc. When you are on 75% of your normal income, your expenses still stay the same and do not reduce by the same amount your income has.
You may be surprised how little LTI adds to your repayments, so it would be worthwhile discussing the options with your Finance consultant, to see if this loan protection option is worthwhile for you.