Loan Insurance – Everything you need to know

Do you know that you can protect your loan from going bad due to any financial emergency? For example, if due to any emergency there is a job loss or job gap, then still your loan can be paid on time and your CIBIL score doesn’t get affected?

This is possible with loan insurance.

Let’s get deep into what is loan insurance all about and how can you take maximum benefit of the same.

Loan insurance blog image

What is loan insurance?

Loan insurance is to cover the repayment of your loan in certain events like job loss, disability or illness, or any other hazard that makes it impossible to repay the loan.

Can I get insurance on my loan?

Most unsecured loans like personal loans, business loans, auto loans, etc are covered by loan insurance. You can take insurance on your loan if it falls into the category of unsecured loans.

What is the use of insurance for loans?

Loan insurance is very useful as it helps in protecting the repayment of loans (& EMI) in case of an unfortunate event like job loss, accidental death, or temporary disability.

Is it necessary to take insurance with a loan?

No, it is not necessary to take insurance with a loan. Though, it is highly advisable to take loan insurance as it protects you and your dear ones against any unfortunate event that may lead to the inability to repay the loan.

How much does it cost to insure a loan?

Usually, it costs around 0.5% to 1.5% of the loan amount to insure a loan.

Is it good to take insurance on a home loan?

Yes, insuring your home loan with loan insurance is a good idea. As the home loan amount is typically several lakhs, it is essential to get a cover so that the liability of repaying it does not fall upon the family members in the case of the death of the borrower.

What types of home loan insurance are there?

There are three types of insurance cover for home loans: 

  1. Level cover plan,
  2. Hybrid cover Plan and
  3. Reducing cover plan.

Level Cover Plan: Throughout the loan tenure, the coverage remains the same for the insured.

Hybrid Cover Plan: The coverage remains full during the first year. It starts reducing as the balance amount reduces with tenure.

Reducing Cover Plan: Both the coverage and outstanding loan reduce with the tenure.

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