Personal Loan Insurance

Loan protection insurance can help you to protect yourself, your family, and your finances in the event of an economic emergency. 
Personal loan insurance covers your monthly bills, provides the optimum solution for loan repayments, and helps your credit score if you are unable to work due to disability or periods of unemployment.

What is Personal Loan Insurance?

As the name suggests, loan protection insurance or loan against insurance policy essentially acts as insurance against unpaid loans
It also ensures loan repayment in case of unfortunate events such as accidents, health concerns, disability, unemployment, or even death.
Therefore, loan insurance schemes are designed to safeguard not just the borrower but also dependents from facing the liability of an unpaid loan. 
If the borrower is covered, the insurance provider repays the outstanding amount to the lender if the borrower is unable to.

How Does Loan Protection Insurance Work?

Insurance plans are designed to protect the policyholder financially and loan insurance schemes work similarly.
The borrower must avail a loan insurance scheme, and pay premiums either upfront in the form of a lump sum or through EMIs for a specific period.
As is the case with most insurance plans, the premium to be paid will vary on a case-to-case basis and depends on factors such as the age of the individual, income, gender, loan amount borrowed, etc.

What Are The Types of Personal Loan Insurance Policies?

There are two different premium loan insurance policies available and they are customized to different requirements. 

Single and regular premium-reducing cover

The insurance premiums for these policies decrease over the duration of the loan as the outstanding loan balance decreases.

Single and regular premium level cover

Even though the loan amount decreases, the premium amount remains the same under this policy.

Features of Loan Insurance Plans

Some of the important features governing loan insurance plans are as follows -

The Premium Amount For Personal Loan Insurance

The premium for personal loan insurance plans is determined by several variables, including the loan amount, bank policies, the borrower's age, physical condition, and length of the loan. For instance, if the loan amount is large, the premium will also be raised. 
Similarly, a person's premium will increase as they get older. Additionally, the premium for longer loan terms is higher if the loan tenure is lengthy. People with severe health conditions pay a higher premium as well.

What Are The Pros & Cons Of Personal Loan Insurance?

Loan against insurance policy offers the following advantages & disadvantages. 

Benefits 

Cons

Is Insurance Mandatory For Personal Loans?

Although not required, loan insurance plans can be purchased as an additional layer of security. The choice of whether to enroll in a loan insurance plan is up to the individual.

Things to Consider Prior to Opting for a Loan Insurance Plan

Before deciding on a loan protection insurance policy, there are certain factors that individuals must keep in mind to maximize the benefits while reducing the risks. Some of these include:

Conclusion

A loan insurance plan may be more of a niche product as compared to certain other insurance plans but it comes with its own unique benefits. Individuals must procure this plan only if it will benefit their financial status as it can remove the loan repayment burden from their dependents in case of unfortunate incidents

Personal Loan Insurance FAQs

You can pay for loan insurance scheme in two ways:

  • Pay a lump sum at the time of loan insurance application
  • Pay it in the form of EMIs

Loan against insurance policy covers the following events:

  • Job loss.
  • Sickness.
  • Accidents.
  • Death.

It is the borrower’s choice to take personal loan insurance or not. The lender can not force you to take one.

Several reputed banks such as SBI, ICICI, IDBI, HDFC, and more offer a loan against insurance policy. 

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