Personal Loan Protection Insurance: Everything You Must Know

Imagine a scenario where you’ve secured a personal loan but are unable to pay off the debt because of a permanent disability, critical illness, redundancy, injury or death. A loan insurance protector is a solution. It protects the policyholder from default by covering the loan repayments or the outstanding amount.

Personal Loan Insurance is designed to safeguard the dependents of the policyholder from facing the brunt of liabilities in the event of an unforeseen calamity like untimely death, disability, sickness, unemployment, etc. Thanks to the cover, the family is not left with the burden of debt. The insurer directly pays the outstanding loan amount to the lender.

The mechanism is similar to any other insurance. You can pay the insurance premium upfront with a lump sum amount or club it with the EMIs. The premium for personal loan protection can vary from lender to lender. It is generally decided on factors like the size of the loan amount, age, health status, and tenure.

A protection plan is expensive as the premium charged by the insurer increases the cost of your personal loan significantly. You can pay the premium upfront or bundle it with periodic installments. It must be noted that the EMI option attracts interest too, which makes the premium steeper. Hence, make sure your monthly budget can absorb the extra premium payout without strain before taking the plunge.

The answer is a big NO. Insurance is not a condition for acquiring a personal loan. While there is no compulsion, a borrower may choose to opt for a cover voluntarily if he feels the need for it.

Benefits:

• Personal loan insurance bestows peace of mind that loved ones are protected from debt burden in your absence.
• It helps retain your credit ratings by ensuring timely loan repayment during financial devastation.

Downsides:

• Loan protection insurance escalates your overall immediate expenses.
• Contrary to belief, it doesn’t help reduce your loan interest rate.

Opting for Personal Loan Insurance may appear like a smart move since it shields your family from liabilities by providing financial cushioning against mishaps. However, the extra premium is an added expenditure that will increase the costs of your loan. So, is it really worthwhile? The key is to read the fine print and understand the terms, conditions, and limitations of the process carefully before acting on it.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.