Cover for your loan

Harshad was a young professional working in a multinational company. He took out a home loan and bought house he was keen on. Unfortunately, a year later, he met with an accident and was bedridden for over six months. He was thus not able to meet his EMI payments, and had to eventually let go of his house. Such an unfortunate situation could have been avoided had Harshad gone in for home loan insurance.

What the term means
Loan protection insurance, or loan payment protection insurancehelps you protect your monthly loan payments if you become unemployed or suffer an accident or sickness. Loan insurance is offered mainly for home loan borrowers. However, some banks offer loan insurance for personal and auto loans too. Under a loan insurance cover, the lump sum amount reduces as the outstanding loan decreases as per the loan schedule.

Benefits
Taking up a loan insurance means that during tough times, you``ll have a cover to take care of your EMIs or of the outstanding loan amount. It is especially useful in case of death or disability due to an accident or sickness, or in case of job loss. It reduces the burden on your family in case of any unfortunate event that befalls you. They would be protected from the financial trauma of paying off the loans. In case of a joint loan application, a joint loan insurance plan can be taken which will effectively cover you and your partner. Both will have the reassurance that if either of you should be faced with redundancy, illness, have an accident or even die, your repayments will be made for you.

Premiums
Premium amounts vary from bank to bank and depend primarily on the following factors:

Age: premiums are usually higher for older people

Loan amount: higher the loan amount, higher the premiums since the bank has a higher liability in such cases

Loan tenure: If the repayment period is longer, premiums are also higher

Medical records: If your physical health is good, the premium gets reduced. . However, if you are suffering from any kind of serious ailments the premium will rise.

Things to keep in mind
Loan insurance is something that you need to give careful thought to. You need to do checks based on:

Loan insurance cover: Does it cover death by accident or death by any other cause? Does it cover temporary disability only or does it cover permanent disability as well?

Eligibility: Check out eligibility criteria for the insurance. Find out whether the loan needs to be of a certain amount.

Payment of premium: Check whether you can pay the premium as part of the EMI or if it has to be made as a lump sum payment

Medical check-ups: Check whether a medical check-up is necessary in all cases.

Tax benefits: Yes, there are tax benefits that you can get with such kind of insurance. Since you are paying a life insurance premium, you can get deduction under Section 80C. However, if it is clubbed with your EMI payments, you lose the insurance benefit.