Get A Cover For Your Loan Amount & Sleep In Peace

Insurance cover on unsecured loans not only ensures repayment of loans, but also spares the family of financial burden in case of accident or death.

Have you borrowed Rs 1 lakh to buy a sleek laptop? And have you ever imagined a situation where you are unable to repay the loan? The reason could be anything, ranging from physical disability caused by an accident, to a job loss. How will you then be able to afford an equated monthly instalment (EMI) of around Rs 9,000? Do you want your family to be burdened with your loan liabilities? The answer lies in shelling out some premium over and above the EMI and insuring the loan.

What do banks & NBFCs offer?

Personal loans from IDBI Bank and UTI Bank come with an insurance cover. In case of death or disability due to an accident, the principal outstanding is paid by the insurance company. In case of IDBI Bank, you can opt for an accident insurance cover from ICICI Lombard for a maximum of Rs 10 lakh. In case of loss of job, the insurance company pays the EMIs for up to three months.

If you opt for the cover, you need to pay a premium of around Rs 300 if the loan amount is below Rs 1 lakh. If the amount is above Rs 1 lakh, the premium is higher at Rs 575. You have to pay the premium upfront. The loan cover is valid for the entire tenure of the loan or your retirement, whichever is earlier.

An insurance company usually charges a premium of Rs 150 on an accident insurance policy. However, in IDBI Bank's case, the premium is structured higher than a normal accident insurance policy as it also accounts for job loss. UTI Bank offers a free personal accident insurance cover with personal loan. So, a customer is not expected to pay any premium as the cost is usually borne by the bank.

GE Countrywide, on the other hand, provides a personal accident cover, as well as term cover, on its personal loan. Personal accident cover is applicable in case of an accident resulting in 'death or total and permanent disability' of the primary customer. Term cover is applicable in cases of 'death or total and permanent disability' not necessarily due to an accident. In case of a personal accident cover, you can take a cover up to a maximum limit of Rs 7.5 lakh on a loan amount higher than Rs 75,000. If the loan amount is less than Rs 75,000, you can take a cover up to Rs 5 lakh.

The term cover is available for borrowers in the age group of 18-59 years. In case of death or permanent disability of the primary applicant, the insurance company (SBI Life) pays the outstanding, if the loan amount is below Rs 75,000, to GE Money.

If loan amount is higher than Rs 75,000, the borrower can take a cover up to a maximum limit of Rs 20 lakh if s/he falls in the age group 18-45 years. Similarly, for age group between 45 and 50 years, a borrower can take cover up to Rs 15 lakh and Rs 7.5 lakh for age group between 51 and 64 years. The insurance premiums can be built-in with your regular EMIs. The charges work out to 2.03% of the instalment if the loan amount is below Rs 75,000 and 3.54% of instalment amount, if you have borrowed more than Rs 75,000.

Is it necessary?

Payment protection insurance is very common abroad. Bankers say it is the best way to ensure financial protection to borrowers' families as this cover takes care of the repayment of the loan in case of death or total permanent disability of the primary loan holder. UTI Bank's vice president-retail assets Sujan Sinha, says, "Accident in today's fast life is a possible risk. So if you have an instrument, which covers your indebtedness and it does not involve any inconvenience like a medical test or anything, you must definitely opt for it."

Ensure that you have a loan cover plan that will take care of your repayment obligations and relieve your family of the burden in case of an unfortunate event. If you have taken a loan for a large amount, say a home loan, such a policy is a must.

Centurion Bank of Punjab's retail head, Vivek Vig, says, "We insist on customers opting for a term insurance cover along with unsecured loans. It will be a financial burden for the family to repay the loan in case of death of the borrower or permanent disability. As it is, dealing with death/permanent disability of the borrower is stressful for the family. The least the borrower can do is pay some additional amount over and above the EMI and opt for the cover."

He adds, "Just go a for a simple term cover. We don't suggest Ulip or a fancy insurance cover. If the borrower already has life insurance in his/her name, he need not take an additional cover with the loan." However, borrowers have not shown much inclination towards this. This is because our country is still under-insured, according to industry players.