One of the common and easy means of meeting the financial needs is to raise a loan. No doubt, loans make us capable to afford the expenses to meet our urgencies, but there are certain risks associated with loans. And at the time of availing a loan facility borrowers hardly give attention to these risks.
To mitigate these risks, the borrowers need all-important shelter, which can guarantee repayment of their outstanding loan amount in any emergency situation without burdening their loved ones.
How is this all-important shelter possible to theborrowers?
It is possible through loan insurance protection plan – aform of payment protection insurance. Generally speaking, this type ofinsurance can help you protect your loan payments in the event of anyeventuality which makes you incapable of repaying your outstanding loan. Thisprotection plan is typically used to protect a home loan, car loan or evensometimes personal loans. Under this insurance cover, the lump sum amountreduces as the outstanding loan decreases as per the loan schedule.
What are the benefits of this loan protection insurance?
Let me explain it. I have come across many instanceswhere a borrower’s liability turned a lifetime nightmare for his family.Midway of liquidating the liability, the borrower expired leaving his family inlurch because he had obtained loan during his lifetime and a good amount wasstill unpaid at the time of his death. Such families have been going frompillar to post to seek relief and relaxation in the settlement of the loanaccount. There are cases where the family of the deceased has no asset to fallback upon for adjustment of the loan account.
It’s here this loan protection plan proves beneficial. Asper the loan protection insurance policy terms, in the event of the death of aborrower the outstanding loan amount is adjustable from the proceeds of theclaim and the whole outstanding amount is paid by the insurance company. There are insurance plans which even take care of theEMIs (equated monthly installments) if the borrower becomes unemployed orsuffer an accident or sickness.
What‘sthe procedure to get this protection plan for loans?
You can buy the plan by paying the premium. Differentbanks charge different amount of premium. Age, health condition, loan amountand length of repayment period of the loan constitute some important parametersof premium amount to be paid for getting this protection cover. The premium isusually higher for older people, borrowers with serious ailments and higherloan amount.
Do such protection plans carry tax relief?
Yes. The borrowers can get income tax relief under Section 80C of the Income Tax Act.
So, have a look at your loan liabilities. Check whether you need a loan protection policy to cover your outstanding loans or not. These plans do not necessarily suit everyone. You may not need it if your financial situation is far better and more than enough to meet the liability in your absence. But if you feel its need, don’t forget to check such loan protection policies across the industry. It would be better to ask your bank for such protection plans.
(The views are of the author & not the institution he works for)