Life Cover Under Loan Insurance and Life Insurance Policy: Loan insurance and life insurance are completely different products. While both types of insurance policies cover death or permanent disability, loan insurance primarily focuses on repaying the education loan amount. Life insurance allows the nominee of the insured to claim the policy in case of unfortunate events and also pay the sum assured at the maturity of the policy. No such terms are applicable to loan insurance. However, you may get some amount if the sum assured exceeds the net outstanding of the loan. Check some of the major differences between life cover under education loan insurance and a life insurance policy.
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What is Education Loan Insurance?
Education loan insurance, also known as credit insurance, is designed to protect the borrower and the lender in the event of unforeseen circumstances that hinder the borrower’s ability to repay the loan. The primary purpose of loan insurance is to repay the loan in case the financial burden is not passed on to the family or co-borrowers. The banks or insurance companies regulated by IRDAI provide the facility of loan insurance and deduct the premium from the loan amount. Let’s understand the events covered under education loan insurance.
Type of Coverage in Education Loan Insurance
Unfortunate incidents can happen at any point in time. So it is essential to understand what’s covered and not covered in education loan insurance. For example, if the borrower suffered a major accident which resulted in permanent disability or death, then it will be very difficult for the family to repay the loan. In such cases, loan insurance provides financial relief as the insurance company repays the entire loan amount to the bank. Let’s check all the events covered under loan insurance:
- In case of natural or accidental death of the insured, the company will pay the sum assured to the bank or lender
- If the insured has become permanently disabled due to an accident, the claim will be approved and the insurer will pay the remaining loan amount
- Some insurance company approves the claim if the insured has committed suicide after 12 months from the date of purchasing the policy
- All the coverage may apply to the co-applicant as well as subject to the terms and conditions of the policy
Also Read: Do you know the Impact of Moratorium and Grace Periods in Education Loan Refinancing?
What is Life Insurance?
Life Insurance is a policy consisting of a contract between the policyholder and the insurer or the insurance company in which the insurer agrees to pay the sum assured in the policy contract. Life insurance can be claimed after the death of the insured. The premium for a life insurance policy is required to be paid yearly or monthly (whichever is applicable). Some insurance companies also pay bonus amounts at certain intervals to the insured. It usually includes a long-term contract. The insured can also apply for a loan against the life insurance policy from the insurance company.
Type of Coverage in Life Insurance
Life insurance mostly covers the death by natural causes or accidental death of the insured. The premium can be paid in a lump sum for a certain period and subject to renewal after the same. The nominee or the family members of the deceased can claim the policy in order to get the sum assured. Check some of the major factors of life insurance below:
- It provides death benefits up to 99 years of age of the insured
- You can get the sum assured at the time of the maturity of the insurance policy
- There are options to purchase a unit-linked insurance plan (ULIP) which is a combination of insurance and investment.
- In a ULIP, there are opportunities to invest the money in multiple fund options
Also Read: Check all the details on Bank of India SUD Life Loan Suraksha
Difference between Loan Insurance Life Cover and Life Insurance
There are a lot of differences between loan insurance and life insurance. Both the policy cannot be directly compared due to the varying features. However, both policies provide death cover for the insured. Check some of the major differences between the incidents covered in life insurance and loan insurance.
| Loan Insurance | The claim amount gets credited to the personal account of the listed nominee |
| The claim amount goes towards the loan repayment directly | The claim amount gets credited in the personal account of the listed nominee |
| Claim can be made in case of permanent disability | A separate term insurance is required for permanent disability |
| No loans or advances will be granted against a loan insurance | Loans can be approved against the insurance policy |
| No amount can be claimed if the policy has matured | A huge amount is received by the policyholder in case of maturity of the policy |
| The maximum amount varies between 1.5% to 3% of the loan amount | Premium depends on the duration of the policy and the age of the policyholder |
| Investment options are not available. | Investment options can be explored in case of Unit Linked Insurance Policy (ULIP) |
FAQs
A loan insurance policy is advisable to purchase as it is beneficial in case of death or permanent disability of the insured.
Yes. Loan insurance usually comes as an add-on benefit on a loan and can be availed even if you have an existing separate life insurance policy.
Loan insurance usually covers two major unfortunate events i.e. death and permanent disability. Some companies may also cover job loss subject to terms and conditions.
No, the entire amount, if not exceeding the net outstanding, will be transferred to the loan provider in order to close the loan.
Life insurance policy can be claimed in the event of death and the amount will be received directly by the nominee. A loan insurance policy can be claimed in the event of death or permanent disability and the amount will be provided directly to the bank in order to close the loan. In case the sum assured exceeds the repayment amount, then the difference amount will be transferred to the nominee.
Loan insurance primarily focuses on repaying outstanding study loans in specific circumstances whereas life insurance offers a broader financial safety net for the family. Read all the terms and conditions properly before purchasing an insurance policy.
To know more about loan insurance, the loan application process, the best 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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