Do You Need to Buy Personal Loan Insurance? Find Out!

While financial planning and discipline can help you stay on track to repay your debt, unwarranted expenses can derail any plan. Here, personal loan insurance serves as a safeguard from the risks arising due to such circumstances.  

A loan insurance policy covers the monthly repayment and protects you from default. You can make the right decision after assessing the cost of these policies. For answers to questions such as, ‘What is personal loan insurance?’, ‘Do I need personal loan insurance?’ and others, read on.

What is Personal Loan Insurance? 

• A personal loan protection or insurance policy assists you in repayment up to a certain period in the case of unforeseen circumstances.
• This financial product covers the burden of loan repayment in the event of job loss, critical illness, disability or death. 
• The insurance companies decide the amount of premiums based on the coverage, loan amount, employment status and health status.
• Since additional protection on your loan is not mandatory, the decision to buy insurance is entirely yours.

How Does Personal Loan Insurance Work?

Here is a quick snapshot of how it works:

• Depending on the insurance company and the type of policy, you can get short-term protection ranging from 12 to 24 months. 
• Generally, an insurance company pays off your debt obligations after 30 to 90 days of continuous unemployment or inability to repay.

What are the Different Types of Personal Loan Protections?

Personal loan insurance policies can be classified into two categories based on their features. See the table for the details:

Standard Loan Protection	Age-Related Loan Protection
Most lenders in India offer this facility.	You can get this type of insurance policy with only a few companies in India.
Premiums don’t depend on your age or occupation.	The premium amount depends on your age and the desired coverage.
Policyholders can choose from a flexible maturity period.	The maximum coverage offered by these policies extends up to 12 months only.
It includes an initial exclusion period of 60 days.	It doesn’t have an exclusion period.

Also Read: Impact of GST on Personal Loans

Should You Get Personal Loan Insurance?

Before opting for this financial product, consider the following reasons:

Security and Financial Assistance

• If unwarranted expenses arise and you find yourself unable to repay your obligations, personal loan insurance policies cover this cost to avoid default.
• In the case of the death of the policyholder, these products relieve the family from the burden of paying EMIs.

Money-back Facility

• Certain loan insurance policies provide returns at regular intervals or a lump sum amount at the end of the plan.
• These returns can be guaranteed or depend on the investment performance or a combination of both.

Things to Consider When Opting for Personal Loan Insurance

Before choosing this financial product, take these aspects into account: 

• Review the total cost rather than the monthly premium when buying an insurance policy against a personal loan.
• Read the terms and agreement of the policy carefully to understand the coverage clearly.
• Check if the insurance company allows you to claim coverage online.
• Review the company’s claim settlement ratio to evaluate its reliability. 
• Verify if the insurance company requires you to make an upfront payment or charges you monthly for premiums.

Personal loan insurance helps secure your and your family’s future when you avail of a loan. However, you should prioritise proper financial management, so that you can pay your EMIs in full and on time. A smart strategy would be to opt for a personal loan at affordable interest rates.

At Fibe, you can get an Instant Cash Loan of up to ₹5 lakhs at competitive interest rates and flexible repayment tenure options. Its online application process ensures that you can get funds online with minimal paperwork. Download the Fibe Personal Loan App or log in to our website to apply for loans and get approval within minutes!

FAQs on Personal Loan Insurance 

Is taking insurance on a personal loan good?

While this isn’t mandatory, here are a few benefits that you need to be aware of:

• It secures you from loan default by covering the cost of monthly repayment in case of unforeseen circumstances.
• You may also get a money-back facility where the insurance company provides a certain amount at the plan’s maturity.

What is the meaning of insurance on a personal loan?

It is a financial product that covers monthly repayment of a personal loan when you aren’t able to manage EMIs in the following situations:

• Job loss
• Disability
• Death

Is personal loan insurance refundable?

Some policies come with a money-back option, where you get a certain amount at the end of the plan. However, getting the entire sum wouldn’t be possible.