Financial requirements may arise anytime for anyone and if one is not prepared and doesn’t have the required funds, it might end up availing a loan. Be it a sudden cash crunch arrived due to an emergency or unexpected expense or a car or home purchase, loans have always helped people get out of their financial problems and needs.
However, secured loans need to be backed up by collateral or a guarantee, where the lender is authorized to take over the ownership of the asset in case of non-payment. Unsecured loans are offered without much fuss and don’t require any asset to back it up.
But what if misfortune occurs and you are unable to pay off the loan? Then what about the money you borrowed? How will you make the repayment or who will be responsible to make the repayments?
Life is full of uncertainties, accidents which can lead to death, physical disability, critical illness, and unemployment are some eventualities that might result in a loan default for any. In such a case the loan burden is transferred to the immediate family members and becomes an unwanted liability to them.
A Loan Insurance is a solution to such problems as it provides cover to your loan in a case of non-repayment or delayed payments. Let’s understand it:
What is Loan Insurance?
Same as a life insurance plan which provides cover to your life, a loan insurance plan provides cover to the loan which you borrowed. Loan insurance covers your monthly loan pay-outs in case of death of the primary borrower, temporary/permanent disability, loss of a job.
The loan protection plan protects the borrower from defaulting on loans. As in these cases, the insurance provider company is responsible to pay the entire outstanding amount of the loan.
However, the coverage and the conditions covered depend on the insurance policy you choose.
You can take loan insurance on several loans including home loans, business loans, education loans, and even on a personal loan.
Loan Insurance Premiums
For paying insurance premiums we have two options to make the payments, these includes:
One can decide to pay insurance premiums alongside the loan instalments.
Or one is always free to make a lump sum payment while availing the loan.
Why should you opt for loan Insurance?
- Many loan insurance provides a life cover to all borrowers which in turn secures the loan.
- Loan insurance provides coverage to your family members for a wide range of loans – Housing Loans, Vehicle Loans, Personal Loans, Education Loans, Business Loans, Loan against Property, Merchandise Loan, etc in case of non- repayment of the loan.
- A loan insurance plan can be taken on both primary as well as a secondary borrower or co-borrower in case of a joint loan.
- Under the loan insurance plan, the policyholder gets tax benefits as per prevailing tax laws.
Important things to consider while buying a loan protection plan
- Buying a loan insurance plan is not at all mandatory. Though the lender might insist on you buying a loan protection plan.
- The decision-making power is entire with you. However, the plan keeps you worry-free for the entire tenure as having coverage is better for financial security.
- The coverage conditions and the amount varies from provider to provider and on plans as well, so you need to research well as per your requirements.
- Most of the loan protection plans cover only accidental deaths and physical disabilities caused because of it. Only a few cover natural deaths and unemployment. So, when buying the loan protection plan you need to find accordingly.
- Comparing different loan protection plans is important in terms of coverage and premiums.
- Always ensure that the premiums are affordable when you buy the policy, as it can affect your EMIs initially.
Opting for a loan protection plan/loan insurance is a smart decision as it keeps you worry-free for the entire tenure in case of non- repayment due to job loss, disability, or death.