Personal loan insurance is usually offered by lenders at the time of sanctioning the amount, but the onus to opt in or not is on you. It can actually act as an essential safety net if you are borrowing money in unfortunate cases like job loss, health costs, and more.
Lenders typically offer two kinds of coverage with personal loans, i.e. term insurance and critical illness insurance. A term plan will repay in the form of a lump sum to the nominee if the borrower passes away during the tenure, which is equal to the unpaid loan balance. Additionally, it also offers critical illness cover. This means that it activates a payout if the borrower is diagnosed with a listed severe illness.
Advertisement
What is Personal Loan Insurance?
In addition to being known as Payment Protection Insurance (PPI), personal loan insurance covers loan repayments in the event that a borrower cannot make payments due to death, disability, or loss of employment. By opting in for PPI, you can prevent payment defaults, safeguard your credit score, along with lenders’ exposure.
Personal Loan Insurance Features
While policies vary by lender, common features include:
Life coverage: It can help in paying off the remaining loan balance in the unfortunate case of death
Disability coverage: It also provides EMIs to borrowers who are medically incapable of working
Advertisement
Unemployment coverage: This feature can cover repayments for a limited period during involuntary job loss
Personal loan insurance can offer protection to you and your family against future uncertainties.
Factors That Can Affect Insurance Premium
Insurance premiums depend on several factors:
Loan amount: A Higher loan amount attracts higher premiums
Tenure: A long tenure of a loan can increase costs due to higher risk
Age: Insurance premiums are relatively higher for borrowers over the age of 50
Health: If the borrower’s health is poor or if they are facing any critical illnesses, it can result in increased premiums
Advertisement
Some insurers allow monthly premium payments, while others require a lump-sum payment. Additionally, a few loan insurance providers may also conduct a medical check-up. The policy ends automatically once the loan is repaid or transferred.
Factors to Consider Before Opting In
Before you take loan insurance you should assess:
Determining whether existing health or life insurance offers sufficient coverage
Exclusions from policies, especially for self-employed individuals or those with pre-existing conditions
The additional cost of the premium and its impact on loan expenses
Independent Policies vs Bundled Coverage
You can purchase PPI independently, and it is not a mandatory requirement. However, some lenders may offer lower interest rates if the borrower opts in. It is important to note that loan insurance usually comes with additional costs. It is important to assess the cost of loan insurance and take an informed decision.
Advertisement
Filing a Claim
In case of incidents covered by insurance, borrowers or their nominees must:
The borrower or the nominee will have to notify the insurer
The borrower or nominee will have to submit the required documentation, like a death certificate or medical reports
Once approved by insurance provider, the insurer will pay off the owed amount or offer assistance based on the policy terms.
