What Are Loan Insurance Plans?

Insurance is a financial protection tool against adversities like theft, job loss, accident, temporary or permanent disability, lousy health, and death. You will find plenty of insurance plans in the market, providing tax benefits, risk covers, and fixed income returns. But among all insurances, people are rarely aware of loan insurance.

Also known as loan protection insurance, it is a type of payment protection. It protects monthly loan payments in case of the borrower’s income loss during a sickness, accident, or loss of employment. Like any other insurance plan, it provides risk cover and tax benefits to the insurance policyholder. They are available for home loans, car loans, and even personal loans.

For instance, if I purchased a home two years ago with a home loan, I make a down payment from my pocket. In the worst scenario, if I meet with an accident or lose my job, I may not repay the loan. Hence, it would mean I may lose my house as well. Here is where loan insurance can help me. If the loan is insured, the insurance company pays the remaining EMIs.

Here are the benefits they offer:

  1. Covers risks: With the insurance plan, you can remain carefree about the financial risks and loss of money involved. The insurance provider will cover all the risk factors while you face a tough time arranging for funds. 
  2. Takes care of EMIs: The insurance plan will also take care of the EMIs when you cannot pay them on time because of significant issues. You will even escape the penalties and other charges against your borrowed loan amount.
  3. Secure future: You and your family can live a secure and burden-free future in case of your disability or uncertain death in an accident or unfortunate event. The insurance provider will provide compensation for the loss of an organ or death of the policyholder.
  4. Insurance cover: The insurance plan will also cover job loss, a significant sickness or disease, and temporary or permanent disability. It will help you pay for all medical and hospitalisation expenses with reimbursement or claim settlement benefits.

There are different kinds of insurance plans covering various factors. Some of them cover only death, whereas others cover temporary and permanent disabilities, too. You should check the eligibility criteria and the premium amount before choosing the insurance plan. All insurance plans involve a premium which you need to pay every six months or every year. Check whether you can afford the amount and can deliver it without delay.

Many insurance companies also provide medical check-ups before approving the insurance plan to reduce the risk factor and meet other criteria. You can also get tax benefits on your insurance plan under Section 80 C of the Income Tax Act, 1961. The minimum age for loan insurance 18 years and the policy can remain active for a maximum of three years with job loss, personal accident, and critical illness cover.

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