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 the borrowers?
It is possible through loan insurance protection plan – a form of payment protection insurance. Generally speaking, this type of insurance can help you protect your loan payments in the event of any eventuality which makes you incapable of repaying your outstanding loan. This protection plan is typically used to protect a home loan, car loan or even sometimes personal loans. Under this insurance cover, the lump sum amount reduces 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 instances where a borrower’s liability turned a lifetime nightmare for his family. Midway of liquidating the liability, the borrower expired leaving his family in lurch because he had obtained loan during his lifetime and a good amount was still unpaid at the time of his death. Such families have been going from pillar to post to seek relief and relaxation in the settlement of the loan account. There are cases where the family of the deceased has no asset to fall back upon for adjustment of the loan account.
It’s here this loan protection plan proves beneficial. As per the loan protection insurance policy terms, in the event of the death of a borrower the outstanding loan amount is adjustable from the proceeds of the claim and the whole outstanding amount is paid by the insurance company. There are insurance plans which even take care of the EMIs (equated monthly installments) if the borrower becomes unemployed or suffer an accident or sickness.
the procedure to get this protection plan for loans?
You can buy the plan by paying the premium. Different banks charge different amount of premium. Age, health condition, loan amount and length of repayment period of the loan constitute some important parameters of premium amount to be paid for getting this protection cover. The premium is usually higher for older people, borrowers with serious ailments and higher loan 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)