Personal loans are quite popular in India. Because of the growing demand for money (for different needs), salaried and self-employed individuals take personal loan online. It enables them to face sudden financial challenges and bring normalcy to life bravely. When you take a loan, paying its EMIs at the right time is mandatory. Borrowers maintain sufficient balances in their bank accounts for successful loan repayments. Our life is quite unpredictable and full of surprises. We never know when unpleasant news and developments will knock at our doors. Accidents, prolonged illness, death, hospitalization, joblessness often dry your income up to a great extent. Paying the loan EMIs becomes a burdensome task. That is why taking out personal loan insurance will help you a lot. Let’s know more about loan protection insurance and its benefits.
What Is Loan Protection Insurance?
Loan protection insurance is like a contract under which the insurance company will repay the borrower’s debt to the bank in the event of an insured event. In unforeseen circumstances, it allows you to transfer the debt obligation to the insurance company. In general, banks trust their subsidiaries or partners to protect their interests. By taking loan protection insurance, you feel more confident. The insurance company will pay the debt off even in a force majeure situation. Most insurance companies will pay your loan amount in case of death (for a person in a family who inherits the debts), temporary disability due to illness or accident, and loss of working capacity due to disability. Borrowers take loan protection insurance voluntarily. Banks can’t impose it on people calling it mandatory. Taking a loan protection insurance is totally up to you as it increases the load on your budget.
Significant Benefit of Loan Protection Insurance
No Defaulting on The Loan Repayment – Timely repayment of the loan is substantial for all banks and financial organizations. A bank that can collect the loan EMI at the right time can grow its business by leaps and bounds in every financial year. Due to several reasons, the non-performing assets of Indian banks continue to increase. As per the data, Indian public sector banks collectively have Rs 6.17 trillion as NPA in 2021.
That is why they advise you to take insurance for personal loans. It reduces the possibility of non-repayment of the loan up to a great extent. When you meet with an accident, lose your employment or face any difficult situation that prevents the incoming money flow, notify the insurance company regarding this. It will verify your claim and start paying the loan EMIs on your behalf. It prevents you from defaulting on the loan, which usually accompanies negative repercussions (legal action from the bank, seizure of property, low credit scores, etc.).
No Financial Headache for Your Family
If the primary borrower of the loan dies for any reason, the debt obligation lies on the shoulders of the guarantor (if any) or family members. When a family member is no more, a family’s financial condition becomes quite fragile. Their relatives may not repay the EMIs with applicable interest fees. Having a personal loan insurance plan prevents them from facing unpleasant situations. The insurance company will pay the remaining loan EMIs and protect the interest of all parties involved.
Tax Benefits Under Section 80C
In simple words, a tax benefit is a discount on the amount of taxes expected to be paid. Governments offer tax benefits to reduce the tax burden on citizens, achieve higher economic growth, and stimulate entrepreneurial activities. Individuals involved in jobs, business activities, and other specific actions are entitled to tax benefits. When you take a personal loan insurance plan, you can claim tax benefits under section 80C.
Money-Back
It is one of the main benefits of choosing personal loan insurance plans. Some organizations promise to give money back at the end of the program. It helps people get hands over the much-needed funds for different expenses.
Also Read : Looking to apply for a personal loan advantages of using a third party aggregator website
What Happens If You Refuse a Personal Loan Insurance Plan?
In general, nothing terrible happens. But some consequences are pretty possible:
The Bank May Deny You a Loan
Always keep in mind that banks don’t demand collateral against the borrowed money (when it comes to personal loans). So, they are pretty careful when giving people personal loans. Taking a personal loan insurance plan dramatically reduces the risks associated with the loan. It guarantees the loan repayment even if something wrong happens to the borrower or his income dries up due to any reason. If you refuse to take a personal loan insurance plan, the bank may reject your application for personal loans. However, it can’t be the sole reason behind a rejection. Many factors decide why the bank did not consider you an ideal candidate (for personal loans) and reject your application.
You get A Loan Will Less Favorable Terms
If you refuse to take a personal loan insurance plan, chances are higher that you get a loan with less favorable terms and conditions. Ideally, the bank should offer the clients a loan with a comparable option available without insurance. Let’s assume you took out insurance for a year and received a loan with low-interest fees. If you take a personal loan for five years and don’t renew the insurance policy after 12 months, the interest rate may increase by 1-2%.
Before signing the loan agreement, you must study all terms and conditions. Pay special attention to the insurance company, premium amount, validity, etc. You will have to submit your health report to take personal loan insurance plans.
Eligibility Criteria for Personal Loan Protection Insurance
You need to fulfil the following terms and conditions to get qualified for a personal loan protection insurance plan-
- The applicant must be an Indian citizen over 18 years of age or more,
- Maximum period- 65 years,
- Coverage- Individual and
- Any Indian citizen who has taken a personal loan.
Choosing Personal Loan Insurance Plans: Helpful Tips for Everyone!
It is essential for all borrowers that they choose the most appropriate personal loan insurance plan. The market is full of offers made by different banks. It will be foolish if you don’t check out the terms and conditions of the personal loan insurance plan and sign the agreement proposed by the lender. How to choose the right personal loan insurance policy that gives you the best coverage against different types of risks? Here are some valuable points that you must keep in mind while searching for the best insurance policy for a personal loan:
Mull Over the Insurance Coverage
While looking for a personal loan’s insurance plan, you must consider all possible conditions and scenarios for which insurance is provided. Unemployment, accidents, diseases, ailments, etc., are always unpredictable. They can strike you at any time, making you unable to repay the loan. You must consider various offers and evaluate them from all angles. Always keep in mind that the terms and conditions of personal loan insurance plans keep changing from time to time. You must have sufficient knowledge about various offers. Choose a program that offers coverage against maximum risks and calamities. It is possible only when you do extensive research, compare different offers, and seek advice from independent experts.
Choose A Particular Type of Personal Loans Insurance Policy
As personal loans have lower tenure (12-60 months), premium insurance is also typical. If you take insurance in a group, it becomes possible to produce the payment amount further.
- Single and regular premium reducing cover- the premium amount reduces as the loan amount decreases with each passing EMIs,
- Single and regular premium level cover- Premium amount means the same throughout the loan tenure.
You need to evaluate the feasibility of insurance covers and choose what is best for yourself.
Banks Providing Personal Loan Insurance: Select What Is Best In Your Case
Different banks in India provide personal loan insurance to people on demand. Some of them are explained below:
| Bank | Details of Personal Loan Insurance cover |
| SBI | State Bank of India is the most popular organization for choosing personal loan insurance cover. It allows you to select insurance up to 1 crore rupees for three years. People below 55 years of age do not need to undergo medical check-ups to take this insurance cover. It covers risks caused by personal accidents, job loss, and illness (up to 13). It offers pan India coverage and risk cover for minors also. |
| HDFC | It provides personal loans with free personal accident coverage up to Rs 8 lakhs and Rs over 1 lakh coverage for critical illness. |
| IDBI Bank | It offers free personal accident cover with its personal loan. |
| ICICI Bank | It promises to take over your loan liability with the All Safe Insurance Plan. |
You must carefully study similar offers made by different banks and evaluate their pros and cons as far as possible. Many people are not knowledgeable enough to differentiate between offers. They must not hesitate to seek help from financial experts. Remember that you can pay the insurance premiums separately or club it with the loan EMIs. The Insurance premium is decided based on the loan amount and period, age, health status.
| Loan Amount | The premium amount will be high if you take a considerable amount of money as a personal loan. |
| Repayment period | The insurance premium remains higher for long-tenure loans. |
| Age | It is essential when you take any insurance policy. The premium amount remains higher for older people. |
| Health Condition | The premium amount will be higher for individuals with bad health conditions. |
Excellent Claim Settlement Ratio
The claim settlement ratio is the number of claims successfully processed and approved by the insurance company against the total number of requests for insurance claims. This is very crucial when you take out a personal loan insurance plan. Understand its terms and conditions and see the claim settlement ratio of banks and insurance companies. It should be more than 95%.
Also Read: 10 Best tips for successful personal loans
Complete KYC formalities Successfully
When you choose a particular personal loan insurance plan, the bank asks you to complete KYC formalities as soon as possible. Read the instructions very well and follow the steps to complete the KYC process without making silly mistakes. Many banks in India offer add-ons along with personal loan insurance plans. Choosing a good addon widens the policy’s protection up to a great extent.
Premium Affordability Is an Excellent Issue For Loan Borrowers
It’s not easy for a loan borrower to take a personal loan along with insurance cover. Individuals take out loans when insufficient funds meet unavoidable and essential financial commitments. Taking a considerable amount of loan with interest fees and insurance coverage may put traditional pressure on your budget. Therefore, premium affordability is an important issue you can’t avoid while choosing a personal loan insurance plan. Make sure you select the insurance coverage that is under your budget. Some banks offer personal loans with integrated insurance plans. Apply for loan online, and study offers made by banks. You can opt-out of the insurance plan either starting or while paying EMIs. In the second case, you will have to give 14 days of advance notice regarding your plan to “move out of the insurance plan
Also Read: Promising Top 10 Life Insurance Companies In India
Conclusion
Sometimes, it becomes difficult for individuals to avoid taking out personal loans. After extensive research and analysis, different life situations compel them to take the most appropriate online personal loans. It would be helpful if you consider taking a personal loan insurance plan along with the loan. It prevents you from defaulting on EMI payments. When you fall ill, lose your employment, and meet with an accident (which causes temporary hospitalization, bed rest for 3-6 months, permanent disability, etc.), the insurance company will pay the loan EMIs. It prevents you from unpleasant favourable situations, loan defaults, lower credit scores, and total financial collapse.
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