“Consumers have become increasingly cautious and more deliberate in their financial behaviour. The general economic situation and low consumer confidence are forcing people to think more carefully before taking on financial obligations, including considering how to protect themselves against unexpected situations,” said Evelin Rahkema, Head of Lending at Inbank.
Caution is also confirmed by statistics from the Bank of Estonia, according to which consumer lending has decreased by nearly 14% over the past year. At the same time, a recent Kantar Emor study indicates that attitudes toward loans are changing. In 2024, 20% of respondents found that the possibility of taking a consumer loan increased their sense of security, whereas in the latest survey, 28% of respondents shared this view.
“This shows that consumers do not exclude loans as a financing tool if the need arises. At the same time, they want to mitigate risks more effectively, which is why the market increasingly offers solutions that help people feel more secure in uncertain circumstances. For example, loan repayments can be insured against unexpected events,” Rahkema added.
Payment protection insurance is offered by several banks and insurance companies under different names and conditions, but its purpose is the same: to help borrowers in situations where their income is temporarily or permanently interrupted.
More common among those with long term financial commitments
Based on If’s experience, payment protection insurance is not a niche product but is used by borrowers from various backgrounds. Most often, it is someone whose income depends on salary or entrepreneurship and who has a long term financial commitment such as a home loan, leasing agreement, or consumer loan. These are often working age individuals with families and fixed expenses who want to ensure that unexpected health issues or job loss do not lead to payment difficulties.
“A key common characteristic is risk awareness. These are clients who prefer to protect their exemplary payment behaviour and peace of mind even if life takes an unexpected turn,” said Pilvi Sark, Head of Strategic Partner Development at If Insurance.
A similar trend is confirmed by Inbank’s experience. “Approximately half of payment protection insurance contracts are concluded for consumer loans and half for instalment payments. In the case of consumer loans, insurance is particularly popular among small loan clients,” Rahkema explained. She added that when concluding new agreements, clients choose to add payment protection in nearly one fifth of applicable cases. The service is also becoming increasingly popular for previously concluded loan agreements.
Main reasons are temporary incapacity for work or unemployment
Both the insurer and the bank representative note that the growth in interest is primarily driven by the changing economic environment. “The general economic situation and a tense labour market have made people more cautious. Whereas loan payment insurance was previously seen more as an additional expense, it is increasingly viewed as a safety net that helps prevent worst case scenarios. Today, clients better understand that even a single unexpected event can have a major impact on monthly loan payments,” described Pilvi Sark.
The reasons for insurance claims have remained similar over time, but their frequency has changed. The main reasons continue to be temporary incapacity for work due to illness or accident and unemployment. “However, in recent years there has been a noticeable trend of increasing cases caused by job loss at the employer’s initiative, such as redundancy or economic difficulties of the company. This confirms that payment protection insurance is not only a tool for mitigating health risks but also economic risks,” Sark added.
From the bank’s perspective, this is also a solution that reduces risks for both parties. “Payment protection insurance is a win for both sides. Clients have their risks covered in case of unexpected events, and the bank faces a lower risk regarding the client’s obligations,” said Rahkema.
Compensation can amount to thousands of euros
The amount of compensation depends directly on the monthly loan payment and the terms of the contract. For example, in the case of unemployment or temporary incapacity for work, the insurance covers monthly loan payments according to the limits specified in the contract and can be paid for up to six consecutive months per case.
“In more tragic events, such as permanent loss of work capacity or death, the insurance covers the outstanding loan balance up to 25,000 euros. This is an amount that helps a person or their loved ones adapt to a difficult situation without the loan obligation becoming overwhelming,” explained the insurance expert.
An Inbank representative gave an example: if the monthly payment is 500 euros and the insurance covers six months, the insurance may cover up to 3,000 euros in loan repayments, depending on the contract. “This is a significant amount that certainly helps families during uncertain times,” added Evelin Rahkema.
At the same time, certain limitations must be considered, such as waiting periods and deductibles. Insurance coverage does not take effect immediately upon signing the contract. In the case of unemployment, the waiting period is 60 days, and for health issues, 30 days. In addition, there is a 30 day deductible period per case, meaning compensation is calculated starting from the 31st day.
“Insurance does not apply if employment is terminated voluntarily or by mutual agreement, if job loss was known before concluding the contract, or if the illness had been diagnosed earlier. Cases resulting from intentional actions are also excluded,” explained the insurance expert.
