Insurance is a tool for the financial protection against adversities like theft, accident, job loss, temporary or permanent disability, bad health and death. A number of insurance plans are available in the market which provides tax benefits, risk covers and fixed income returns. But among all insurances, Loan Insurance Plans are the plans which very less people are aware of.
What are Loan Insurance Plans?
Loan Insurance Plans, or Loan Protection Insurance, is a type of payment protection insurance. Loan insurance helps to protect monthly loan payments in case of income loss of borrower maybe any accident or sickness and even if they become unemployed. Like any other insurance plans loan insurance also provides risk cover and tax benefits too.
Loan insurance plans are available for home loans, car loan and even some times for the personal loans.
Let’s understand loan protection insurance with an example-
Suppose Mr A purchased a home 2 years back, for which he took a home loan and made the down payment from his pocket. Suddenly he meets with an accident and loses his job and hence his income to repay the borrowed home loan. In this case, Mr A can lose his dream house. This is where Loan Insurance comes in. If the loan is insured then the insurance company will pay the remaining EMIs. All that is required is to avail an insurance plan while borrowing.
Benefits of Loan Insurance
- Loan Insurance covers the risk factor during tough time.
- Loan Insurances take care of EMIs when the borrower is unable to pay them because of some major issues.
- Secured and burden free future for the family or the dependents in case of borrower’s death.
- Cover for job loss, major sickness/disease, temporary or permanent disability.
- While co-borrowing both the applicants can avail joint loan insurance. Insurance will provide cover for both the applicants.
Things that should be kept in mind while applying for Loan Insurance
- What does the insurance cover?
There are different kinds of loan insurance which cover differently. Many of them covers only death while some of them covers permanent disabilities while few covers temporary disability too.
- Check for the eligibility.
Different loan insurances have different eligibility such as some loan insurance needs limited loan amount for which they provide the cover. So, before going for it check whether you loan amount can be covered or not.
- Always check for the premium amount.
When you go for any insurance there is a particular premium amount which you have to pay on yearly or half yearly basis. So, always check whether you can afford that particular amount or not.
- Medical check-ups.
Many insurance companies have a medical check-up of the applicant before giving the insurance. They do this to reduce their risk factor.
Premiums for Loan Insurance
Like any other insurance here also you have to pay premiums. The premium amount varies with different insurance providers. This also depends on many other factors. Some of these factors are-
- Loan Amount: Higher will be the loan amount higher will be the premiums and vice versa.
- Applicant’s Age: If the age of the borrower is more the premium will be high, as here they have more risk. But if the age of the borrower is less (young) then the premium will be low.
- Tenor: Longer will be the tenor higher will be the premium and similarly lower will be the tenor lower will be the premium.
Tax Benefits of Loan Insurance
Loan Protection Insurance also provides tax benefits. As they cover the death of the borrower hence they come under the life insurance. Hence provide the tax benefits under the section 80C.
Any person looking for a loan or PPI should always read and understand the terms and conditions before committing. The selection should be based on the company’s reputation and reviews. A loan protection insurance might not be everybody’s need, hence it is very important to analyse and understand the self-financial condition to know whether insurance is really required or not. All the insurance policies come with some exclusion clauses, that is situations or events in which the insurance policy will not hold. Hence it is very important to go through each clause and understand them properly. Also the policy needs to be cost-effective for the applicant.
If all these questions point out that a PPI is required then an applicant should definitely choose them after careful research. A well-chosen policy will protect your assets acquired through loan even if you are unable to repay it.
