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In today’s economic climate, it’s essential to consider how to safeguard yourself against potential financial setbacks, such as job loss or unexpected medical expenses. One way to protect your finances is through loan payment protection insurance. Raivo Piibor, Head of Insurance Business Line at Coop Pank, explains who should consider this type of coverage and how it can help.

While home insurance is widely recognized as necessary, the benefits of a loan payment protection insurance have only recently gained broader awareness. While both types of insurance offer financial protection, home insurance covers your property, whereas loan payment protection insurance ensures you can continue making your loan payments even in tough times.

For instance, loan payment protection insurance can be beneficial if someone loses their job due to redundancy or if their employer fails to meet contractual obligations, prompting the employee to terminate their employment contract. Additionally, this insurance provides support when someone becomes temporarily unable to work due to illness or an accident. In such cases, medical conditions must be verified through official medical documents or diagnostic tests.

Loan payment protection insurance covers both the principal and interest of a loan. The premium amount and specific terms depend on the loan agreement and policy details. At Coop Pank, insurance can cover monthly loan payments of up to €1,500.

Compensation is paid for up to 12 months after the deductible period has ended, meaning that loan payment protection insurance can help prevent up to €18,000 in financial obligations. To receive compensation, the insured must register with the Unemployment Insurance Fund or be officially deemed temporarily unfit for work.

Job loss and health issues are key risks

Statistics show that job loss and temporary health problems are among the most common reasons for financial difficulties. The situation becomes even more critical during economic downturns. For instance, in the third quarter of 2024, Estonia’s unemployment rate stood at 7.4%, with 1,500 more unemployed individuals compared to the previous year.

Unexpected expenses can drain savings

Financial experts recommend maintaining savings that cover at least three months of living expenses. Ideally, these emergency funds should be distributed across different savings accounts to generate interest over time. However, not everyone has such savings, or they may not be sufficient—especially if finding a new job takes longer than expected or if a health condition prevents working. Monthly loan payments amounting to thousands of euros still need to be made, which can be difficult without insurance.

Who should consider loan payment protection insurance?

Salaried employees, especially those without substantial savings, can greatly benefit from loan payment protection insurance. It is particularly important for those who would struggle to cover loan payments if their income suddenly stopped.

It’s also worth considering the stability of your job. Employees in startups or companies experiencing ongoing financial difficulties may be at a higher risk of job loss. Since mortgage payments are often the largest monthly expense, insuring them can be a smart decision. For instance, if a mortgage payment is €300 per month, the insurance premium would be approximately €10.50 per month, while the maximum compensation could reach €3,600.

However, it’s important to note that loan payment protection insurance does not cover situations where an employment contract is terminated by mutual agreement, if a fixed-term contract expires, or if the termination process began before the insurance policy took effect.

Parents should also be aware that temporary incapacity compensation can be claimed if they need to stay home due to the illness or accident of a child under 18, provided that a certificate of incapacity for work has been submitted and approved by the Health Insurance Fund.

Loan payment insurance provides peace of mind and financial security, ensuring that unexpected income loss or medical issues do not lead to missed loan payments or debt accumulation. Therefore, in addition to home insurance, it is worth considering insuring your loan payments as well.