unusual life cover for loan

jonnyb

I've had a quick browse and cannot find an existing answer to this question.

I've been brave (or foolish, depending on your point of view) and taken out a loan to help a very good friend who was struggling financially.

I want to help him arrange life cover for the amount, so that if he dies during the 5 year term, I get paid as a beneficiary, to settle the loan.

I think the best way would be to have something similar to decreasing term mortgage cover, but cannot find anything specific to loans.

Obviously I want to avoid the stupidly high amounts that the main banks offer for loan protection, and they don't often provide life cover anyway.

So, if anyone has suggestions, please let me have them. Thanks.

Retired_I.F.A.

There are a number of policies that would fit the bill and a few that you've probably not thought of. Decreasing term assurance, decreasing at a rate equal to or simlar as one can get to the loan interest rate in other words a repayment mortgage protection plan is but one.
Death however is possibly the least likely event to which your friend could default on your loan to him as the odds are higher that he'd be unable to keep up repayments if ill either short or long term, so Permanent Healh insurance and Critical illness plans could be used. And then there's Redundancy cover to consider too but truth is insurances are for the cautious and lending money to a friend unable to borrow it himself tells me your not that cautious.
Then there's the question of who pays the insurance premium and who owns the policy. Although many would say you can only insure yourself or your spouse you can be the policyholder as you have in legal tems an " insurable interest" Alternatively he can be the policyholder and have it legally assigned to you.
Premiums can be set up to be paid by anyone but a legal aggrement may be advisable to ensure they remain liable if they simply decide to cancel a payment to the policy.

Bottom line is talk to an I.F.A. he's in the best position to advise you and to get you the best cover at the best rate.

Best advice though is to get the guy to get his own loan and repay you asap.