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Loans have become an essential part of fulfilling dreams. It can be owning a home, buying a car, or pursuing higher education but with borrowing comes a significant responsibility - its repayment. Life is unpredictable, and unforeseen events like job loss, illness, disability, or even death can affect a borrower's ability to repay the loan. This is where loan insurance steps in as a crucial financial safety net. In this article, know all about loan insurance, its types and more.
What is loan insurance?
Loan insurance is financial protection that covers borrowers against sudden life events like death, disability, or loss of employment. If the borrower is unable to repay the loan due to such events, the policy pays the outstanding balance, and therefore, the family is not responsible for the burden of loan repayment. Buying loan insurance is optional, but majority of lenders suggest it as a layer of extra protection.
How does loan insurance work?
If a borrower takes a loan, they can choose loan insurance by paying a premium in advance or by paying the premium in instalments along with the Equated Monthly Instalments (EMIs) of their loan. In case of an insured incident, like a serious illness or accident resulting in disability, the insurance company pays the outstanding loan amount.
Types of loan insurance
Loan insurance policies vary depending on the loan type and coverage. Some of these are:
- Life cover loan insurance clears the loan outstanding amount in case of the borrower’s death.
- Job loss cover pays EMIs for a specific term in case of sudden loss of employment.
- Critical illness cover repays the loan in case of critical illness.
- Disability cover assists in loan repayment in case of permanent disability that affects income.
Is loan insurance necessary?
While loan insurance is not mandatory, it still provides peace of mind, particularly for long-term loans like home loans that need to be paid off over decades. Insurance is not always required for less-than-a-decade credits like personal loans since they are unsecured and generally have more manageable repayment terms.
Financial security isn’t just about savings – it’s also about making informed borrowing decisions.
FIRSTmoney: A smarter personal loan choice
FIRSTmoney provides a risk-free and hassle-free borrowing experience for those who need quick funds without the extra cost of loan insurance. With loan amounts between ₹ 50,000 [DN1] and ₹ 10 lakhs, borrowers can avail loans without collateral or mandatory insurance policies.
They can select their repayment schedules between 9 to 60 months based on their ability to pay EMIs. The low personal loan interest rate of 10.99% and an end-to-end digital application process help in quick approvals and disbursals within 30 minutes. Moreover, there are no foreclosure charges so borrowers can repay early without any additional fee. Check your personal Loan eligibility now!
Conclusion
Loan insurance may be an important safeguard in the case of long-term and high-value loans. Yet in short-term money requirements, an easy lending service such as a smart personal loan can turn out to be better.
Refer to the EMI calculator to calculate EMIs for your next car, two-wheeler, home loan, etc.
Disclaimer
The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.