When you take a personal loan, the bank or lender may also ask you to buy an insurance plan. And this is when you might wonder – is insurance for loans compulsory? Do you really need it? In this blog, we will do our best to answer all your queries regarding insurance for loans. Here, we will explain personal loan insurance, including whether it is compulsory, why lenders offer it, what it covers, and more.
What is Personal Loan Insurance?
Personal loan insurance, also called loan payment protection insurance, is there to protect you if you cannot repay your loan because of job loss, illness, accidents, or death.
So, in these situations when you fail to repay the loan, the insurance company pays the loan amount or a part of it on your behalf. With this, your family does not have to pay the loan in such circumstances. Hence, it is a way to stay safe and worry-free.
Is Insurance Compulsory with Personal Loans?
No.
In India, there is no rule that says you must buy insurance for loans. You can take a personal loan without insurance. But many banks or NBFCs may suggest that you buy it. Some may even include it in your loan offer without telling you clearly. So, make sure you always read your loan documents carefully.
Why Lenders Recommend Loan Insurance
Lenders offer loan payment protection insurance as it helps them stay safe. Here are some of the reasons why they suggest it:
- If something happens to you, the insurer will pay the loan amount.
- It helps avoid recovery problems.
- It protects their money.
- Some banks even earn commission from selling insurance.
Note: Even though lenders recommend it, remember it is solely your choice to buy personal loan insurance.
Benefits of Loan Insurance
Here are some of the benefits of buying personal loan insurance:
- Protection for your family: In the unfortunate event of a job loss or death, your family would not have to repay the loan.
- Keeps your credit score safe: If you miss your EMIs, it can affect your credit score. This insurance may help you avoid that.
- Extra coverage: Some insurance policies also cover hospital bills, accidents or illnesses.
- Simple claim process: With the right documents, claiming the insurance is usually easy.
Costs & Coverage: How Much Should You Pay?
The cost of insurance for loans depends on various factors like:
- Loan amount
- Loan duration
- Your age and health
- Type of coverage
Usually, you pay a one-time premium, which may be added to your loan amount. This means your EMI may go up a little. You can find out the exact cost using a personal loan insurance calculator. These are available on many bank and insurance websites.
Keep in mind to compare different options before saying yes.
When It Might Not Be Worth It
Loan payment protection insurance is helpful, but it is not always needed. Here are some cases where it might not be worth it:
- If you already have life insurance or health insurance, you may not need another policy.
- If your loan is small or for a short period, like a few months, then this insurance may not be very useful.
- If you are financially secure and have enough savings, then this personal loan insurance may not be needed.
- If the premium is too high compared to your loan, it may not be worth it.
Conclusion
Personal loan insurance is not mandatory in India, though it can be helpful in several situations. Hence, you should only take it if it fits your situation. Always read the terms and conditions before you choose what’s right for you.
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