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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.

Benefits of Personal Loan Insurance

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.

Premium Amount for Personal Loan Insurance Plans

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.

Factors to consider while choosing a Loan Insurance Plan

There are many essential factors that you should consider when opting for an insurance plan for a personal loan. The major ones among them are

1. Decide the type of personal loan insurance plan based on your requirement:

Loan insurance that covers all the causes of death, other than the accidental causes, should be preferred. A good loan insurance policy should cover both the temporary & permanent disability factors. Some banks also offer joint loan insurance protection for the borrowers in case of joint loans. You should assess your requirement and, based on that, decide which type of personal loan insurance policy would be best for you.

2. It's not mandatory to always opt for a personal loan insurance policy:

Generally, all the loan borrowers don't need to have a loan insurance policy. There can be instances when the lender tries to sell you the plan along with the loan, but you need to decide whether you need to invest in it or not. If your life insurance cover is of a higher amount, you might not feel the need to opt for personal loan insurance.

3. Check the affordability of the loan insurance plan:

If you sign up for a loan insurance plan, then the premium payment will be an additional expenditure. Therefore, you need to first assess whether your financial situation would allow you to proceed with the premium payment or not. You need to plan your budget accordingly and, if required, save on your monthly expenses to pay your premium. The premium amount can be paid through monthly instalments or through a single payment as per your financial planning. It's noteworthy that some loan insurance plans do not require a premium amount.

4. Compare the different available offers:

There is a possibility that you could buy an insurance cover of a high amount based on the lender's suggestion. If proper research is done, you can choose the best loan insurance policy for yourself in your budget. Some insurance policies do not cover unemployment factors; therefore, you should first understand all the terms and conditions of the insurance plan and then only sign up for the same. Certain loan insurance plans do not cover higher loan amounts.

5. Verify pre-closure and other related charges:

There can be instances when you choose to foreclose your loan before the loan tenure ends. In such a case, there is a possibility that you might lose your insurance benefits. Hence, you should check if any pre-closure charges are there or if the insurer will provide a refund of the premiums if you foreclose the loan. Also, if the loan is transferred to another bank, there are chances that the protection coverage of the loan insurance policy would expire.

Types of Personal Loan Insurance Policies

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.

You can easily apply for a personal loan through Bajaj MARKETS. The application process is seamless, convenient, and hassle-free. You can also benefit from many other advantages like online application & quick loan disbursement, best-in-class customer support, and competitive interest rates. So don't miss the chance; look for the best offers on personal loans today!