Wednesday, 10 November 2010

Loan Insurance or Loan Protection Insurance

You may be aware of loan insurance or loan protection insurance. An insurance which will take care of paying your loan when you become unemployed or met with an accident or due to sickness so that you could not earn your routine income. Normally this type of insurance is to protect your home loan or car loan or even personal loan also. Usually nobody think about that the time may come when they could not pay off the loan EMIs. But if you have already taken loan insurance, you won’t be worry even if you could not pay your EMIs wholly or partly.

Loan Insurance is also known as Loan Protection Insurance or Loan Payment Protection Insurance. This insurance will pay off your loan outstanding amount or the EMIs you could not pay due to any accident, or unemployment or sickness. If you lost your job or the person who taken the loan died or became disable due to an accident or sickness this loan insurance is useful. The insurance reduces the burden of paying off the loan on your family if any misshapen situation occurred. They should not pay the balance loan and can be saved from the dilemma of losing the asset you have purchased through the loan.
If your loan is a joint loan, you can go for a joint loan insurance plan to protect the outstanding payment, if anyone of you met with an accident, died or got sick.

Most of the banks charge a premium for this insurance and it varies from bank to bank. It varies as per the age of the person who take the loan (Older people should pay more premium than young people), Loan amount (For a big loan amount, premium also may be high), Period of loan (Longer period attracts more premium) and health of the person (more healthy attracts less premium).

You should take care of the following points when you go for loan insurance.

Death cover
You have to check whether this insurance is for death cover by accident only or normal death also. Some time it may cover only the accident death cover. In such a condition the premium may be very small amount. Any way you have to confirm it before taking loan insurance.

Disability cover
You should verify that whether your loan insurance cover disability of the person who take the loan by accident or by any sickness. If it allows disability cover, check whether it covers permanent disability only or temporary disability also.

Amount of Loan
You have to know that whether the insurance cover is according to the loan amount and if so, you have to assure that the insurance cover the amount of loan you have taken or more. Because the premium may be more if it is for any additional amount. And also should assure that the insurance is enough to cover you loan amount or not.

Premium Payment
Your premium payment may be lump sum or through installment with EMI. Check how they collect the insurance premium.

Medical Check-up
Ask to the bank that whether a medical check-up is necessary for the insurance or not.

Tax Benefit
Remember that you can claim the premium amount for tax exemption; because it is a life insurance premium you are paying. But if the premium is attached with your EMI you cannot claim exemption.

Anyway this loan insurance is good for those who are taking loan for purchase a house or any other assets. They should not worry about any unfortunate event which may happen to them at the tenure of loan.

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