Protect Your Financial Future With Personal Loan Insurance

Personal loans have become a lifeline for achieving various financial needs – from funding education to covering medical emergencies. However, with loans come responsibilities, and a very important responsibility is fulfilling your financial commitments. This is where personal loan insurance comes in, offering a safety net that can provide peace of mind during unforeseen circumstances.

Personal loan insurance, often referred to as loan protection insurance or payment protection insurance (PPI), is designed to protect both borrowers and lenders from financial risks. It acts as a shield when borrowers face difficulties in repaying their loans due to reasons such as illness, disability, loss of employment, or even death.

Why Get Personal Loan Insurance?

By itself, personal loans can seem expensive, add to that the cost of personal loan insurance, and the payments keep on accumulating. So, why should you get personal loan insurance? Imagine this, if something were to happen to you before you could pay off your personal loan, the financial responsibility of paying it off would fall on your spouse or other dependents. This would burden them with debt, not allowing them to achieve their financial hopes and dreams.

Therefore, personal loan insurance is an important part of the personal loan commitment:

Provides Protection During Unforeseen Events:

Life is full of uncertainties – from unexpected medical emergencies to sudden job losses. Personal loan insurance provides a safety net during such challenging times, ensuring that your loan payments are taken care of, preventing defaults, and maintaining your creditworthiness.

Offers Peace of Mind:

The mental and emotional toll of financial stress can be overwhelming. With personal loan insurance, you can enjoy peace of mind, knowing that even if the unexpected happens, you and your loved ones won’t be burdened with the financial strain of repaying the loan.

Safeguards Your Loved Ones:

In the event of your demise during the loan tenure, personal loan insurance can be a crucial lifeline for your family. It ensures that the outstanding loan amount is settled, preventing your family from inheriting any debt.

Helps Maintain Your Credit Score:

Loan defaults can have a negative impact on your credit score, making it difficult to secure credit in the future. Personal loan insurance prevents such defaults, preserving your creditworthiness and financial reputation.

Allows Flexibility for Different Needs:

Personal loan insurance comes in various forms, each tailored to specific scenarios. Whether you’re worried about job loss, disability, critical illness, or accidental injuries, there’s an insurance type that can provide coverage.

Enables You to Focus on Recovery:

If you have faced any physical injury, your focus should be on recovery and stability. Personal loan insurance ensures that you can concentrate on getting back on your feet without the added pressure of loan repayments.

Provides the Option of Customizable Coverage:

Personal loan insurance often allows for customisation based on your needs and preferences. You can choose the coverage that aligns with your circumstances and offers the most comprehensive protection.

Helps with Financial Preparedness:

While you can’t predict the future, you can certainly prepare for it. Personal loan insurance is a proactive step towards financial preparedness, providing a safety net that you can fall back on when unexpected events occur.

Key Types of Personal Loan Insurance

Various types of personal loan insurance options are available. Every different type of personal loan insurance offers coverage against different types of obstacles that can hinder you from making your EMI payments promptly. Here are some of the most popular personal loan insurance solutions:

Payment Protection Insurance (PPI)-

Payment Protection Insurance, commonly known as PPI, is a form of coverage that steps in when you face difficulties repaying your loan due to unforeseen events. These events could include job loss, illness, accidents, or disability. PPI ensures that your loan repayments are made during times of financial hardship, alleviating the burden on your shoulders and maintaining your creditworthiness.

Credit Life Insurance-

Credit life insurance offers protection in the unfortunate event of the borrower’s death. If the borrower passes away during the loan tenure, credit life insurance settles the outstanding loan amount. This is particularly beneficial for individuals with significant financial responsibilities, ensuring that their dependents are not burdened with the loan repayment.

Disability Insurance-

Disability insurance, also known as loan disability insurance, provides coverage if you become disabled and are unable to work, resulting in loss of income. This insurance type ensures that your loan payments are made during your period of disability, preventing defaults and financial strain.

Involuntary Unemployment Insurance-

This insurance type kicks in when you lose your job involuntarily, whether due to layoffs or company closures. It covers your loan repayments for a specified period, providing breathing room while you search for a new job.

Critical Illness Insurance-

Critical illness insurance offers coverage if you are diagnosed with a critical illness listed in the policy. The insurance provider pays a lump sum amount that can be used to cover medical expenses or loan repayments.

Personal Loan Insurance in India

Company	Premium (INR per Rs. 1 lakh of loan amount for a 5-year term for a 30-year-old male borrower with a good health)	Coverage Options
SBI Life	75	Death, disability, unemployment, critical illness
ICICI Prudential Life	80	Death, disability, unemployment, critical illness, accidental death
HDFC Life	77	Death, disability, unemployment, critical illness
Aviva Life	85	Death, disability, unemployment, critical illness
Max Life	78	Death, disability, unemployment, critical illness

Factors to Consider:

Coverage Details: Understand the terms and conditions of the insurance policy. What events are covered? Is there a waiting period? Are there any exclusions?
Cost: The premium for personal loan insurance depends on various factors, including loan amount, tenure, and your health condition. Compare different insurance providers to find the best value.
Claim Process: Familiarize yourself with the claim procedure. A straightforward and efficient claim process ensures that the benefits reach you when needed the most.

Conclusion

Personal loan insurance is a valuable tool in your financial toolkit, offering protection against life’s uncertainties. While not mandatory, it can provide the much-needed cushion during challenging times, ensuring that your financial commitments are met, and your loved ones are taken care of. Before purchasing personal loan insurance, research thoroughly, assess your needs, and choose a policy that aligns with your financial situation. By taking this proactive step, you’re not only securing your loans but also investing in your peace of mind and financial well-being.

AMIT ARORA

I am a seasoned retail banker with over 21 years of global experience across business, risk and digital. In my last assignment as Global Head Digital Capabilities, I drove the largest change initiative in the bank to deliver the end-to-end digital program with over US$1 billion in planned investment. Prior to that, as COO for Group Retail Products & Digital, I implemented a risk management framework for retail banking across the group.