With a personal loanv, you can manage a significant expense or a range of expenses while spreading the repayment over a comfortable tenure. But your well-laid-out repayment plan may not transpire as you’d hoped. Unexpected events like job loss, a medical emergency, or an urgent expense can affect your ability to repay. A personal loan insurance account covers these possibilities. Learn how it works in this blog.
What is a Personal Loan Insurance?
A personal loan insurance is an optional cover that helps you manage your outstanding loan or eligible EMIs in case of certain unforeseen events covered under the policy. The events typically considered for inability to service the loan are death, permanent disability, critical illness, and job loss. The exact coverage, exclusions, premium, and claim conditions vary by policy.
With personal loan insurance, you can add a layer of protection and ensure loan repayment in the event of mishaps. It can reduce the sudden financial pressure on you or your family.
How Does a Personal Loan Insurance Work?
IRDAI restricts lenders from bundling insurance with a personal loan. Thus, it is a voluntary choice based on your protection needs. Once you’re certain, the process is fairly straightforward.
- Choose the Cover: You can either buy the insurance policy from the same bank offering the personal loan or consider another insurer, depending on the available options.
- Check Policy Terms: Review the events covered, exclusions, waiting periods, and specific claim conditions. These details affect your experience when you actually need to use the insurance.
- Pay the Premium: You can pay the premium upfront or at regular intervals. Check the flexibility and your comfort level before deciding.
- File a Claim: If an insured event occurs, you or your nominee can raise a claim with the insurer and provide the required documents to process the request.
- Get Settlement: If you meet the coverage criteria, the claim is approved, and the insurer pays the eligible amount towards the outstanding loan.
Things to Consider While Getting a Personal Loan Insurance
Before considering a personal loan insurance, it helps to perform a quick check of essential factors to ensure you’re making the right decision.
- Type of Coverage
Check the events covered, exclusions, and claim conditions. Some insurance covers may pay the entire outstanding loan, while others pay EMIs for a specific term based on the conditions.
- Total Cost
Compare the premium, but also look into the overall cost of the policy, including the processing fee and taxes.
- Process
Understand how smooth the claim process is by checking the efficiency of the customer support. Customer reviews will reveal details about the same. Also, check what happens to the cover if you repay the loan early.
- Claim Settlement Ratio
This ratio indicates if an insurer’s claims-handling history. It is the percentage of claims settled against the ones filed. Consider it alongside the policy terms to judge the insurer’s reliability.
- Insurer’s Reputation
Going for a reputed and well-established insurer can make your experience of buying the policy and getting your claims settled more reliable.
The Way Ahead
A personal loan, as much as it is convenient, is also a financial commitment that influences your credit score and finances in the long run. Making insurance a part of it helps you account for unexpected circumstances. As you contemplate getting a personal loan insurance, know that it is not a mandatory requirement but depends on your priorities. Once you’re sure about your requirements, you can opt for the financial protection with confidence. Choose a policy that makes sense for your personal loan.
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