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.
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.
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.
There are two different premium loan insurance policies available and they are customized to different requirements.
The insurance premiums for these policies decrease over the duration of the loan as the outstanding loan balance decreases.
Even though the loan amount decreases, the premium amount remains the same under this policy.
Some of the important features governing loan insurance plans are as follows -
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.
Loan against insurance policy offers the following advantages & disadvantages.
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.
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:
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
You can pay for loan insurance scheme in two ways:
Loan against insurance policy covers the following events:
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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