Nowadays, obtaining a personal loan has become easier for self-employed individuals, salaried employees, and retired pensioners. However, in the case of sudden job loss, temporary disability, or accidental death of the borrower, repaying the personal loan in monthly installments can become difficult. This is where, personal loan protection plans come in handy. Whether it is a home loan or a personal loan, it is advisable to buy a loan insurance plan in order to protect a borrower’s monthly loan payments in the case of unfortunate occurrences. Banks in India offer loan insurance to help borrowers repay their home loans, car loans, and personal loans on time regardless of the individual’s ability to pay.
Benefits of Personal Loan Insurance
Some banks extend with a loan insurance cover, but it is up to the borrower to buy the policy cover or reject it. There are several advantages to buying a loan protection insurance plan such as:
- In the case of unfortunate events such as job loss, accidental death or temporary disability, loan insurance plans reduce a borrower’s outstanding loan, and protect his or her monthly loan payments.
- With a loan protection insurance plan, the borrower’s family will not be burdened with a sudden financial obligation to repay the loan.
- Some loan protection insurance plans can provide tax benefits under Section 80C.
- Some personal loan insurance policies have money-back plans where the buyer receives a certain amount at the end of the plan.
Premium amount for Personal Loan Insurance Plans
Like any other insurance, a premium amount has to be paid for loan insurance. The premium amount varies from bank to bank. The premium amount may be higher or lower depending on the individual’s age, physical health, loan amount, and loan tenure.
Factors to consider while choosing a Loan Insurance Plan
There are several important factors to consider while choosing a personal loan insurance plan such as:
A loan insurance should cover all causes of death, not just the accidental cause.
A loan insurance should cover both temporary and permanent disability.
Some loan insurance plans will not cover higher loan amounts.
Some insurance plans may not require a premium amount.
The premium amount can be paid in monthly installments, or in a single payment.
Some insurance plans may require mandatory medical check-ups.
The loan insurance policy may lapse or expire on full repayment of the loan, or if the loan is transferred to another bank.
Joint loan insurance covers are provided by some banks for both the parties.
Types of Personal Loan Insurance Policies
As the the premium amount for a personal loan insurance plan is also low. With a group insurance policy, the premium amount is reduced further. There are 4 different premium covers available to suit a buyer’s needs:
- Single and regular premium reducing cover (the premium amount decreases as the outstanding loan amount decreases during the loan tenure).
- Single and regular premium level cover (the premium amount remains the same even if the outstanding loan amount decreases).
Banks offering Personal Accident cover for Personal Loans
Some banks offer a free personal accident cover with its personal loans like:
- with free personal accident cover of up to Rs.8 lakhs, and a critical illness cover of Rs.1 lakh.
- IDBI Bank also offers a free personal accident cover with its personal loans.
- ICICI Bank offers the All Safe Insurance Plan to insure a borrower’s personal loan liability.