If you are a salaried & self-employed individual or a retired pensioner, you can easily obtain a personal loan in case of a financial emergency. However, if, as a salaried individual, you face a sudden job loss, self-employed persons face losses in their business or in case of temporary disability, the sudden death of the borrower, repaying the monthly installments of the personal loan can be a matter of financial distress. In these cases, the personal loan insurance plans come to your rescue. Whether you are availing home loan or a personal loan, it is advised to buy a loan insurance plan for enhanced protection in case any unfortunate incident affects the borrower's monthly loan payments.
The multiple reasons for your inability to repay your loan amount can significantly damage your credit score and act as a barrier to your financial planning objectives. There are many reasons why it's suggested to have a personal loan insurance policy in place. These insurance policies ensure that your dependents are not burdened with the loan repayment responsibility. When you opt for a personal loan insurance policy, you can make the premium payment upfront, or you need to make the premium payment along with the personal loan EMI.
Nowadays, many banks offer loans with a loan insurance policy, but whether to opt for such an insurance policy or reject it depends on the borrower's choice. There are multiple advantages of having a loan insurance plan; major ones among them are:
In case any unfortunate incidents happen like temporary/permanent disability, accidental death, or sudden job loss, having a loan insurance plan scales down the borrower's outstanding loan and secures their monthly loan payments.
Some of the loan protection insurance plans provide tax benefits under Section 80C of the IT Act.
Some specific personal loan insurance policies also offer money-back plans; in these cases, the buyer is liable to get a certain amount at the end of the maturity period.
Having an active loan insurance plan supports the borrower's family in case of any unfortunate incidents, as they will not be burdened to repay the loan premium.
Similar to other insurance policies, the borrower needs to pay a premium amount against the loan insurance policy. This premium amount varies based on the bank's regulations, loan amount, borrower's age, physical health, and loan tenure. The following table highlights some of the factors on which the premium amount of personal loan insurance plans vary:
Factors |
How does the premium amount vary? |
Loan Amount |
If the loan amount is high, the premium amount would be on the higher side. |
Age |
The amount is higher for individuals in the senior age group as the risk factor is high. |
Loan repayment period |
If the loan tenure is long, the premium amount will be higher accordingly. |
Health |
The premium amount is generally high with people having severe health issues. |
Mainly there are four different premium loan insurance policies available as per the requirement of different investors:
Single and regular premium reducing cover
In these policies, the insurance premium amount keeps on decreasing based on the outstanding loan amount across the loan tenure.
Single and regular premium level cover
The premium amount is the same under these policies even though the loan amount decreases.
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