The Banks/ NBFC’s fund for our lifetime dreams of owning a house. The immense pleasure of fulfilling our dreams comes with a responsibility of repaying the same in the next few years without any default. Any defaults in the repayment of loan can lead your credit score in bad shape and further stop you to be eligible for any new loan. Any unforeseen event can also be a reason for defaults during the loan tenure. Such unfortunate situations can be avoided with the help of loan insurance. (Know more about Credit Score)
In India, loan insurance is a trending concept. Many of us, while borrowing a loan, are not aware of the consequences of the non repayment of the loan in case of unemployment, accident or any suffering due to critical sickness.
Loan protection Insurance or loan payment protection insurance is a form of payment that helps the borrower in the monthly loan payments. Car loans, personal loans (everything about personal loan) , home loans etc are generally protected by loan protection insurance. Loan insurance covers the decreased outstanding loan amount and the lump sum amount also reduces as per the loan schedule. In case of demise of the borrower during the loan tenure the company settles the outstanding loan with the bank. These insurance plans are designed to provide financial support to the policy holder at the time of need.
During tough times, loan insurance covers the loan and takes care of the EMI’s or the outstanding amount. It is important in case of:
Loss of job
Disability or may be death due to sickness or accident.
In case of any unfortunate event, the loan insurance effectively reduces the burden from the family. The family is saved from the financial trauma that would be faced by them without an insurance cover. A joint loan insurance plan should be taken, in case of a joint loan application, which can effectively cover both the partners. Both partners are reassured for the repayments made due to any redundancy, illness, accident or even death of any one of them.
Banks/ NBFC’s try to convince the borrower to get an insurance cover for Home loans, Loan against properties, business loan, auto loans, credit card dues, personal loans and other loans. Some lenders offer insurance for auto loans also. The basic reason behind this is to reduce the risk of defaults of non payments and also it is an extra source of income and their subsidiary companies that sell the insurance plans. In case of a single borrower who does not meet any one of the specific criteria to be eligible for the loan, Insurance cover works as mitigate to improve the eligibility criteria to lend the loan. (Need to know the difference between Bank’s/NBFC’s)
Like any other kind of insurance, premiums for the loan insurance is also paid. Premiums for loan insurance vary from bank to bank and depend primarily on:
Insurance cover needs to be given a careful thought and a proper check to know:
Yes, tax benefits are availed even with loan insurance. Being an insurance premium, the borrower gets a deduction under 80C. If the premium is paid as a part of EMI, insurance benefit cannot be availed.
Review all the terms and conditions, clauses and exclusions before determining the policy to be fit for you. Employer benefits their full time employees with the coverage throughout their job that offers disability and sick pay for almost 6 months. Make sure to qualify for the claims. Always understand the facts before singing any contract. The financial situation has to be understood carefully and select that suits best for you.