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Tata Capital > Blog > 6 Key Benefits of Loan Insurance

Shubh Chintak

6 Key Benefits of Loan Insurance

6 Key Benefits of Loan Insurance

Whether it’s meeting a short-term emergency or a fulfilling long-term dream, getting a loan is one of the easiest and most convenient ways to finance these expenses. From personal loans and home loans to vehicle loans and education loans, these nifty financial instruments allow you to comfortably finance different aspects of your life without dipping into your savings.

But life can be uncertain. A loss of income, disability, or death can affect your ability to repay these loans, leaving you and your family in financial distress. In such situations, having loan insurance can be a saviour.

What is loan insurance?

Loan insurance is a type of insurance plan that helps you repay your outstanding loan during unexpected situations like job loss, permanent or partial disability, or death. In these situations, the insurer pays the monthly EMIs on your behalf, preventing you from defaulting on the loan.

The premium for loan insurance is typically determined based on factors like the loan amount, repayment tenure, your age, and health conditions.

Benefits of loan insurance

Certain situations in life can hinder your ability to repay the loan, impacting your and your family’s financial and mental well-being. During such situations, loan insurance can offer the following benefits:

1. Financial security for your family

The unfortunate event of your death or a permanent or partial disability can put the burden of loan repayment on your family, especially if you’re the sole breadwinner. If they are unable to repay the loan timely, they will lose the asset for which you’ve taken the loan. Loan insurance protects your family from this financial strain by taking care of the repayments.

2. Protection of your assets and collateral

If you’re unable to repay the loan due to unemployment, disability, or death, lenders might seize your assets, including your savings and even your home. Moreover, if you’ve taken a secured loan against assets like your home or securities, you will lose the collateral if you default on the loan. During such times, loan insurance can protect your assets and collateral by repaying the loan on your behalf.

3. No need to dip into savings

Loan insurance takes care of the outstanding loan amount in the event of a disability, critical illness, or death. This ensures the borrower or their family members don’t have to dip into their savings or sell off personal assets to repay the loan during an already difficult time.

4. Unaffected credit score

Defaulting on loan payments can cause a dip in your credit score, affecting your eligibility to secure credit in the future. When you default on a loan, lenders see you as a risky borrower, making them less likely to approve your application for loans or credit cards. Loan insurance helps you prevent defaults due to unavoidable situations, ensuring they don’t affect your credit score.

5. Flexible and customisable

Loan insurance plans can be tailored to meet the borrower’s unique requirements. They have the flexibility to select the coverage amount, tenure, and other policy terms that best suit their financial situation. Depending on the insurer’s policies, they can even add or remove certain features based on their preferences.

6. Peace of mind

One of the most significant benefits of loan insurance is the peace of mind it offers knowing the repayment burden will not fall on your family should anything happen to you.

The end note

While loans offer a convenient way to manage big-ticket expenses, situations like a job loss, disability, or death can affect your repayment capability, leaving you and your family in emotional and financial stress. Therefore, it’s a smart decision to get loan insurance to avoid these inconveniences and ensure you and your family don’t struggle financially during these tough times.

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