What is personal loan insurance and do you need it? Personal loan insurance is used to cover payments and/or the balance of the loan should something catastrophic happen during the course of your repayment process. You may consider this option if you think something may happen. This is the unknown factor and tough to predict; the insurance industry is based on fear of the unknown. People get all types of insurance because they do not know what the future holds and often hope for the best but plan for the worst.

The additional cost of a personal loan insurance plan will depend on a handful of variables including the loan amount, rate and your basic qualifications. Similar to rates and fees given to personal loans, insurance premiums are based on risk factors. If you are considered a high risk for default, you might pay a higher fee. Regardless of the fee, the real question is do you need personal loan insurance protection?

Consider the size of the personal loan as well. The larger the amount, the longer the term of the loan; the longer the term, the greater the chance something will happen. If you experience an unfortunate event that causes your income to drop for whatever reason, having loan insurance would be a good.

If you have a turbulent past and the cost of the insurance does not seem too excessive, consider it. What is too excessive? I would think paying anything more than 20% of the monthly payment would be considered too excessive. If you get a personal loan and the monthly payment are $100, but the insurance protection is an additional $40 for a total $140, think hard about it.

Ultimately, do what you feel is right for peace of mind. Loan officers can answer questions but may have a slanted view. Talk with a different loan officer and get a second opinion from friends and family if you feel the amount is too high.