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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.
What is a Personal Loan Insurance?
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.
How do Personal Loan Insurances Work?
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.
Cost & Affordability:
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.
Is Personal Loan Insurance Mandatory?
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.
Pros & Cons of having a Loan Protection Insurance:
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.
The Takeaway:
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.
DISCLAIMER
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.
FAQS - FREQUENTLY ASKED QUESTIONS
Is insurance mandatory for a Personal Loan ?
No, having insurance to get a Personal Loan is not mandatory. However, considering a loan insurance policy is a good idea as it can protect you and your family in an unexpected event, such as death or disability.
There are many different loan insurance policies available. Accordingly, comparing policies and choosing one that best meets your needs is important. You can use a loan protection insurance calculator to help you estimate the cost of a policy.
How to claim Personal Loan Insurance ?
To file a claim for Personal Loan Insurance, follow these steps:
Contact your lender and inform them about the death or disability of the insured borrower.
Provide the necessary documentation, such as the death or disability certificates, to your lender.
Your lender will process your claim and make a payment to you.
How much does Personal Loan Insurance cost ?
Personal Loan Insurance costs depend on age, physical health, loan amount, and tenure. It also varies from lender to lender and any add-ons you may include with the policy.
How do I get a Personal Loan Insurance quote ?
Contact your lender or insurance company for a loan insurance quote on your Personal Loan. When comparing quotes, consider the policy's cost, coverage, and terms and conditions.
What is loan insurance ?
Loan insurance is coverage that helps you avoid defaulting on loan repayment due to untimely and unfortunate circumstances.
What happens if I cancel my Personal Loan Insurance ?
Cancelling the loan insurance on your Personal Loan means you will not have coverage if something happens to you. Regardless of disability or death, you must still repay the loan.
Before cancelling, discuss the implications with your lender or insurance company to understand the consequences.
