Personal Loan Insurance Explained: Benefits and Things to Consider

In today’s financial landscape, personal loans have emerged as a powerful tool for individuals seeking financial aid. Whether you need to make a major purchase, expand your business, or take care of a medical emergency, personal loans always come to the rescue.

Sometimes, individuals also use this collateral-free financing option for debt consolidation. Available at competitive rates of interest, personal loans are among the most popular options to get financial assistance. Nowadays, a number of lending institutions allow you to apply for an instant personal loan online to give quick access to funds.

Table of Content

What is Personal Loan Insurance?
How Does It Work?
Benefits
Things to Consider

However, life is unpredictable, and there can be certain unforeseen circumstances that can hinder your ability to repay the loan. This is where the concept of personal loan insurance comes into play. Here is everything you need to know about personal loan insurance, the benefits it offers, and important things to consider while making a choice:

What is Personal Loan Insurance?

Personal loan insurance, often referred to as payment protection insurance (PPI), is a type of insurance policy that protects borrowers in case they aren’t able to repay the debt due to certain circumstances. Simply put, personal loan insurance acts as a safety net, ensuring that the borrower is not burdened with loan repayment during difficult times.

How Does It Work?

A loan protection plan is somewhat similar to any other insurance policy. You can choose an option based on your needs and pay the premium either as a lump sum amount or include it in your EMIs. The premium amount for a personal loan protection plan varies, depending on several factors such as the loan amount, age, health status, and tenure.

This coverage is offered against risky life events that may affect an individual’s ability to repay the loan amount. Some of these include:

Unemployment
Critical illness
Disability
Loss of life

Getting insurance against a personal loan provides a number of benefits and can play a crucial role in safeguarding your future. Nowadays, almost every lending institution gives an option for personal loan insurance with customisable coverage options. Your loan protection plan can be tailored to your specific needs.

Benefits

Here are all the key benefits of availing personal loan insurance:

Security: Human life is full of uncertainties, and there can be certain circumstances, such as job loss, critical illness, disability, etc., that can have a huge impact on a person’s financial situation. In such situations, personal loan insurance can prove to be very helpful. In case of any such challenging situation, the personal loan insurance will provide you with some financial relief.
Unaffected Credit Score: Not being able to pay your loan EMIs on time can cause a dip in your credit score. It also affects your eligibility to secure credit in the future due to a poor credit history. But having an insurance plan prevents you from defaulting on your loan repayment, ensuring that your creditworthiness remains unaffected.
Tax benefits: There are a few loan protection plans that offer tax deductions under Section 80C of the I-T Act, 1961. So, if you choose any of these insurance policies, you can save a significant amount in the form of tax deductions.

Things to Consider

Given the number of options available, choosing the right type of insurance plan for your personal loan can be a daunting task. Here are a few important factors that need to be taken into consideration while making a decision:

Cost: When selecting an insurance policy for your personal loan, the first thing you should focus on is the price. However, to understand the total cost of a loan protection plan, you need to look beyond the monthly premium. It also includes things like processing fees and other additional charges.
Terms & Conditions: Another thing you need to consider is the terms & conditions of your personal loan insurance policy. It is always recommended to read all the documents carefully and pay close attention to the fine print. It often includes information on what is covered and what is not.
Payment Method: Now the next thing to keep in mind while making a choice is the type of payment method that will be used for your personal loan insurance. Some policies require you to pay the entire premium amount upfront, while others give you an option to add it to your EMIs. It is important to understand if the payment method available with your loan protection plan suits you or not.
Claim Settlement Process: The last thing you should always check is the claim settlement process of the loan insurance you’re choosing. Always start with the procedure used for filing a claim and also check the list of documents needed for the same.

Although getting insurance cover for your personal loan is not mandatory, this is slowly becoming the norm because of the wealth of advantages it offers. With a loan protection plan, you can safeguard yourself and your family in an unfavourable situation.

While availing a personal loan, you can estimate the premium amount using parameters like personal loan interest, tenure, etc. It is always best to compare all the available options and then pick the one that is well-suited to your specific requirements.