What Is Loan Protection Insurance and Do You Need It?

For many of us, taking a loan has been an important part of our lives. Be it buying a house, starting a business or covering medical costs. But what happens if you're suddenly unable to pay it back? That’s where loan protection insurance comes in.

Let’s explore what is loan insurance, how it works, and whether it’s something you should seriously consider. We’ll also discuss how to find the best loan protection insurance to suit your needs in India.

What Is Loan Insurance?

Loan protection insurance or a loan insurance policy is a type of loan that helps you repay your loan in unexpected situations. This can include losing your job, disability or even death, which can stop you from earning. 

It can be considered as a backup plan and works like a safety net. If you are unable to earn and pay your EMIs, the insurance helps cover the loan so your family or guardian is not left with the burden.

How Does It Work?

Once you opt for a loan protection plan, you pay a premium along with your loan. It can be either a one-time payment or spread over EMIs. If something like a major illness or job loss happens, the insurer can either pay your EMIs for a while or clear the entire loan. It depends on your loan plan.

This loan is commonly offered alongside home loans, personal loans, business loans and other types of borrowing.

Types of Loan Protection Plans in India

Depending on the lender and insurer, there are different types of loan protection plan available:

1. Term-Based Loan Insurance

Covers the outstanding loan amount during the loan tenure. If the borrower passes away or becomes permanently disabled, the insurance pays off the remaining amount.

2. Critical Illness Loan Cover

Offers coverage if the borrower is diagnosed with a serious illness such as cancer, heart disease or kidney failure.

3. Unemployment Loan Insurance

Covers EMIs for a few months if the borrower loses their job due to company downsizing or closure.

4. Accident Cover with Loan Protection

Offers added benefits in the event of an accidental disability or death. It helps families stay financially secure.

Do You Really Need Loan Protection Insurance?

Here’s a breakdown of who should consider buying loan protector insurance:

• Primary income earners: If you are the sole earner in your family, a loan protection plan ensures your dependents don’t inherit your debt.
• Home loan borrowers: Given the long tenure and large amounts involved, covering a home loan with protection insurance can be a wise decision.
• Self-employed professionals: Your income may fluctuate. This cover can help during lean phases.
• People with health risks: Those with existing health conditions can benefit from a critical illness-linked loan insurance.

If any of this feels familiar, loan protection insurance can give you a sense of security when you need it most.

Benefits of Loan Protection Insurance

Having a loan protector insurance can bring the following benefits:

• Financial security for your family
• Protection against EMIs in times of crisis
• One-time premium option bundled with loan EMI
• Customisation as per loan type or tenure
• Tax benefits under Section 80C (for premiums paid)

How to Choose the Best Loan Protection Insurance

Choosing the right plan is just as important as taking a loan itself. Here’s what to keep in mind when selecting loan protector insurance:

1. Coverage Terms

Make sure the plan covers all the risks. Choose the one that matches your concerns.

2. Tenure Matching Your Loan

The protection plan should run for the entire loan duration.

3. Premium Type

Some insurers offer a one-time premium, while others offer it as part of monthly EMIs.

4. Claim Process

Look at the insurer’s claim process and settlement record and how quickly they process everything.

5. Exclusions

Don’t forget to check the exclusions. For example, if you leave your job voluntarily, job loss cover usually won’t apply.

Is Loan Insurance Mandatory?

Loan protection insurance is not mandatory in India. Some banks might bundle it into large loan offerings like a home or car loan, but you’re under no obligation to accept it. You can opt out or choose your own insurer.

My Mudra Tip

Before taking a loan, compare loan protection plans in India online. With My Mudra, not only can you find the right loan, but we also help you understand which add-ons are truly worth it. This helps you make informed choices while keeping your financial well-being intact.

Summing Up

While loan protection insurance might seem like an expense, it could turn out to be a financial lifesaver when you face a difficulty. With a long-term loan, it provides you security and peace that your liabilities won’t burden your loved ones.

At My Mudra, we aim not just to help you get the right loan, but also the right protection. Speak to our team today to understand if a loan insurance plan is right for your profile. Secure your loan. Secure your future.