What Is Loan Protection Insurance?

As the world is moving at a fast pace, the process of providing services is also becoming simpler. Unlike old-school days, when borrowing and lending loans was difficult, now it can be done in a few minutes. But many of us are less familiar with the fact that this quick and easy way of providing loans is nothing more than a trap. It is a bait through which an individual can end up losing their collateral. 

Imagine a situation like a job loss or an accidental disability that has affected your source of income. How will you pay off the high-interest rates on loans? This means that sometimes taking out a loan can be a burden, regardless of whether you are self-employed or employed by an employer. Here’s when a personal loan protection plan will protect you like your parents. Whether you are taking out a personal loan or a home loan, it is a good idea to invest in a loan protection plan to ensure that you can continue making your monthly loan payments in the event of unforeseen circumstances. 

Benefits of Personal Loan Protection Insurance 

Loan protection insurance is offered in India by numerous banks and financial institutions. Here are some of the key benefits of personal loan insurance. 

1. In case you lose your source of income, a personal loan protection cover will reduce the outstanding loan amount, and secure your repayments of the loan. 
2. The burden of paying monthly loan EMIs would not be shifted to your family in case of any mishaps. 
3. You can avail of tax deductions on some loan protection insurance plans under Section 80C of the Income Tax Act, 1961. 
4. Many loan protection insurance companies provide a money-back feature, where the policyholders may receive a certain amount at the maturity of the plan. 

Types of Personal Loan Protection Insurance Policies

The section below provides an overview of the two categories of personal loan protection insurance plans.

• Single and Regular Premium Reducing Cover: Under this type, a premium amount decreases with the decrease in the outstanding loan amount during the loan period. 
• Single and Regular Premium Level Cover: The change in the outstanding loan amount does not affect the premium amount in this type of personal loan protection policy. 

Premium Amount For Personal Loan Protection Insurance Plans

The borrower has to pay a premium against their personal loan protection insurance policy. Some of the factors that determine the premium amount include the loan amount, bank regulations, the age of the borrower, physical condition, and loan tenure. The details are outlined in the table below. 

Factors to Consider While Choosing a Personal Loan Protection Insurance 

Listed below are the parameters that must be taken into consideration when purchasing a personal loan protection insurance policy. 

1. You must check that your loan insurance plan must cover all types of death and disabilities. 
2. Some loan insurance plans provide limited coverage. Therefore, while purchasing, check the total coverage amount provided by an insurance company. 
3. Flexibility to pay premiums in monthly installments or all at once. Also, check if your insurance plan excludes the premium amount. 
4. A few insurance companies may ask you to undergo medical check-ups. 
5. A loan protection insurance plan may lapse on repayment of the entire loan. Moreover, it can also be transferred to another bank. 
6. Some banks provide joint loan insurance coverage for both parties. 

Conclusion 

Uncertainties can happen anytime and may bring a financial burden for you and your family. Loan protection insurance is a must if you are planning to buy assets like a car and a home. When you are not earning, a loan protection plan will take care of your monthly EMI installments. There are a few banks, such as HDFC Bank, IDBI Bank, and ICICI Bank, that provide protection for loan borrowers. 

Also Read: 

What is The Benefit of Term Insurance with a Return on Premium?