Getting a personal loan has become simpler for a salaried, self-employed, or even retired person. However, before taking any loan, you must assess whether you need it. First, they come with high-interest rates, and second, you could lose the collateral. In addition, unforeseen circumstances such as temporary disability, job loss, or accidental death can put the borrower's family in a tricky situation. It might get increasingly difficult to pay the equated monthly installments (EMIs). This is precisely where personal loan protection insurance plans come into the picture.
"Just in case you face anything unfortunate, a loan insurance plan will help you tide through it by paying off your monthly EMIs, whether a personal or a home loan. Irrespective of your financial condition, banks and NBFCs in India offer loan insurance schemes to assist you in repaying your personal, car, or home loans," says Anant Ladha, founder, Invest Aaj For Kal, a financial advisory firm.
Naval Goel, founder and CEO of PolicyX.com, explains: "Imagine a situation wherein you have secured a loan, but you are unable to pay off the debt due owing to whether a permanent disability, critical illness, redundancy, injury, or death. It is then a loan insurance protection comes to the rescue. By default, it protects the policyholder by covering the loan repayments or the outstanding amount."
Features And Benefits Of Personal Loan Insurance
Many banks in India offer a personal loan protection plan as an extended service with their personal loans. Here you have the option of accepting or rejecting this value-added service. However, before making any decision, it is important to know its features and benefits.
· During unfortunate events such as accidental death, job loss, or temporary disability of the borrower, loan insurance policies reduce the outstanding loan amount and secure their loan repayments.
· The borrower's family won't feel burdened with the sudden responsibility of paying the monthly EMI.
· Some loan insurance plans even offer tax deductions under Section 80C of the Income Tax Act, 1961.
· Many insurers have loan insurance policies with a money-back feature, where the insured or the borrower receives a certain amount at the end of the plan.
The premium amount for personal loan insurance plans depends on several factors, such as the loan amount, bank regulations, borrower's age, physical health, and loan tenure. For instance, the premium would also be increased if the loan amount is high. Same with age, the higher the age or the senior the person, the higher the premium amount. In addition, if the loan tenure is long, the premium for longer loan tenures would be higher. The premium is also high for people with severe health issues.
Factors To Consider While Choosing A Loan Insurance Plan
There are many essential factors that you should consider when opting for an insurance plan for a personal loan. The major ones among them are here as follows:
· A loan insurance plan must cover all causes of death and not just accidental deaths.
· It must include coverage against both permanent and temporary disability.
· The loan protection insurance plan must cater to borrowers with higher loan amounts.
· Go for a plan that allows monthly premium installments or a single lump-sum payment per your requirements.
Types Of Personal Loan Insurance Policies
Here are the two important types of personal loan insurance plans:
· Single and Regular Premium Reducing Cover
Under this plan, your premium rate decreases as the outstanding loan amount go down during the loan tenure.
· Single and Regular Premium Level Cover
Here, the premium rate remains unchanged even if the outstanding loan amount decreases.