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.

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 -

• These loans can be procured for individuals as well as for groups depending on the provider
• Loan insurance plans generally cover death, disability, unemployment, and in some cases critical illnesses as well. It is up to the individual to decide what features are best suited to his/her requirement
• Additionally, co-borrowers, if any can also be covered under the plan
• The premium amount can be paid in the form of a lump sum or can be paid through EMIs. If the loan amount is high, then the amount of premium to be paid is also high. 
• This is also applicable for longer repayment tenure, older applicants, and those with relatively poor health.

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 

• This insurance prevents you from defaulting on your loan in case you can’t afford to pay it due to sudden job loss or illness
• Additionally, it prevents your family from inheriting your debt in the event of your death
• Policyholders can also get some tax benefits under Section 80C of the Income Tax Act
• Certain policies also provide moneyback offers at the end of their tenure
• Personal loan insurance protects your credit score from dipping when you can’t repay the loan

Cons

• Most personal loan insurance plans are expensive and may add additional burden to the borrower
• Since they cater to different borrowers, some plans do not cover pre-existing illnesses
• While the insurance plans protect against job loss, most do not include self-employment, freelance, part-time, etc.

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:

• Make sure your insurance plan covers all causes of death and not just accidental deaths
• It is also essential that the plan includes both permanent and temporary disability coverage
• Choose a plan that lets you pay your premiums in monthly installments or one lump sum, depending on your needs
• Before deciding whether a specific insurance policy is appropriate for you, you should review all of the clauses and exclusions it contains
• Thoroughly check the conditions under which you may lose the coverage, as well
• Higher loan amounts must also be covered by the loan protection insurance plan
• You must make sure you have the financial means to repay both the loan and, if you choose to buy one, the premium for a loan insurance policy
• Some employers provide disability benefits to their benefits, so understand your company policies before opting for a loan insurance plan

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