Education loan is one of the best options to fund your education especially if you want to study abroad. While these loans provide the necessary financial support, it is essential to have a planned repayment and a backup for the same. Education loan insurance is an important financial tool that assists the loan repayment in case of any unforeseen circumstances. If the borrower becomes temporarily or permanently disabled or even in case of death, the insurance company pays off the remaining loan amount to the bank. This is helpful for both students and the parents in many ways.
If you are relating it to a life insurance policy and are confused, let us clarify that for you. Well, similarities are there but both are different. Let’s understand how insurance on education loans is important and what are the major benefits.
What is Education Loan Insurance?
Nihal took an education loan of INR 15 lakh to study at a university in London. After one year he suffered an accident and unfortunately, he died. Since he had taken education loan insurance the bank was not worried about the loan repayment. The insurance company repaid the loan amount on behalf of the borrower and his family was free from financial difficulties. Through this story, you can understand that student loan insurance provides you with complete coverage for loan repayment in any unforeseen circumstances like temporary or permanent disability, death etc.
- It is mostly offered by the banks and the premium is deducted from the loan amount so that you can get a hassle-free insurance policy.
- Though it is not mandatory to take an education loan protection policy or a loan insurance policy, it’s a must-have for you to provide safety against unforeseen circumstances.
- Usually, the premium amount for loan insurance is 0.5%-2% of the total loan amount (may vary among banks/NBFCs).
It is important to analyse your credit score before applying for a loan. Check this blog on Understanding Credit Score and Its Impact on Education Loan Refinancing
What are the Benefits of Education Loan Insurance?
Education loan insurance reduces the financial burden on the student as well as the parents or the co-applicant as it helps cover the loan repayment in any unfortunate event. It typically covers a range of scenarios like the borrower’s disability, death, or critical illness. It may also include benefits like a waiver of future premiums.
- Most of the lenders offer education loan protection plans or insurance at the time of disbursement which allows you to get the policy easily.
- Banks have dedicated schemes for student loan insurance e.g. SBI Rinn Raksha policy can be taken to cover the education loan amount.
- It is easily available, especially for collateral-free loans provided by private banks and NBFCs. Private banks can ask to take an insurance policy compulsorily in case of an unsecured loan.
- You will also get income Tax benefits as per the applicable income tax laws in India. The deduction can be claimed for paying insurance premiums under section 80(C).
Education Loan Insurance Coverage
It is very important to check what expenses are being covered in the education loan insurance. Always choose policies which cover maximum things like death by any cause, temporary and permanent disability, short-term illness etc. Let’s check some of the major coverage provided by the education loan insurance schemes:
- Tuition Fees: When you take an education loan the major part of the total loan amount goes towards the payment of tuition fees. The policy will cover the loan amount including the tuition fee.
- Cost of Living: Whatever loan amount you have utilized towards your accommodation and living expenses will be covered in the insurance policy.
- Death Benefit: In case of death of the borrower the insurance company will pay the entire loan amount to the bank. Make sure that the policy which you are taking provides coverage of death by any cause.
- Coverage in case of disability: The education loan protection plan or loan insurance will cover temporary or permanent disability and other major illnesses. Please check all the terms and conditions of the insurance policy and ensure that it covers all the major unforeseen circumstances.
Loan Refinancing or Balance Transfer are popular options these days. You can also choose to refinance your education loan to get low-interest rates. Check this blog on Education Loan Refinancing
How to Purchase Education Loan Insurance?
Purchasing an insurance policy for your education loan is very simple. When you will take an education loan from a bank it will offer you a plan for loan insurance. If you want to take the insurance the premium amount will be automatically deducted from the overall loan amount and you don’t need to do anything from here. However, you must check the amount of premium charged by the insurer as it varies from bank to bank. Check some of the steps involved in purchasing student loan insurance:
- Government Banks: At the time of loan disbursement the bank will offer you an insurance scheme for the loan. Usually, the government bank charges 0.5% to 1% of the total loan amount as a premium amount.
- Private Banks/NBFCs: When you take an education loan from a private bank or NBFCs and if it is an unsecured loan then they will make it compulsory for you to buy the insurance policy. Private banks and NBFCs charge 1.5-2% of the total loan amount as a premium.
FAQs
The government hasn’t made this mandatory to purchase education loan insurance. However, it is advisable to insure the loan to avoid a financial crunch in case of any unforeseen circumstances.
A life insurance policy pays the sum assured to your family in the event of your death. However, the loan insurance policy covers the loan repayment amount and pays it off in case of the death of the borrower or other situations such as temporary/permanent disability.
The cost of premiums varies from bank to bank. You will have to pay an amount equal to 0.5-2% of the total loan amount.
Yes, education loans have insurance. In case the primary loan applicant fails to repay the loan in situations like death or terminal illness, insurance on an education loan ensures that the co-applicants are not burdened to repay the loan amount.
No, getting education loans insured is not mandatory. It completely depends on the borrower if they want to get the loan amount insured or not. However, education loan insurance is highly recommended as it provides safety in case of unforeseen circumstances.
Education loan insurance is a safeguard for Indian students studying abroad. It provides peace of mind by ensuring that the burden of loan repayment does not fall on the borrower’s family in case of unforeseen events.
To know more about education loan insurance, the best international bank accounts for students, forex and banking experience for global students or international money transfers, reach out to our experts at 1800572126 to help ease your study abroad experience.
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