In the era of rising costs, we all know how crucial it is to plan one’s finances. Education loan is something which if not planned well can prove to be a costly affair. A lot of students plan to study abroad and it is in this light that financial planning for education takes centre stage.
Financial Planning is the process of understanding one’s financial situation and accordingly building a financial plan to achieve the desired goals. An important part of financial planning is taking education loan insurance. In this blog, we are going to understand the importance of education loan insurance in one’s financial planning strategy.
Table of contents
Why is Financial Planning Important For Education?
A student planning to study abroad has to consider a lot of expenses like travel and accommodation expenses, tuition fees, etc. In such a situation, it becomes prudent that one gauges his or her expenses from time to time. This entire process of understanding one’s financial situation and aligning expenses with your budget is nothing but financial planning.
Financial planning helps you in achieving your educational goals without hurting your financial situation. With a strong financial planning strategy at your end, you can easily finish your education at a college of your choice.
What Role Does Education Loan Insurance Have in Your Strategy?
It is considered a wise move to have education loan insurance in your strategy when you are taking a hefty loan amount. Let’s understand how education loan insurance plays an important role in your strategy.
Encourages You To Pursue Higher Education
It may happen that while taking an education loan, you may be worried about repaying it back in unforeseen circumstances. This discourages people from taking hefty loans. However, if you have insurance for your education loan you wouldn’t be so worried. In this manner, education loan insurance plays a very crucial role in encouraging one to pursue higher education without having any financial concerns.
Saves You in Tough Times
Including education loan insurance in your strategy will also help you in tough times like a physical disability. In case a student suffers a permanent disability due to any unfortunate events then the insurance company will pay the outstanding loan amount for the student. This saves the student from any kind of financial stress in difficult times.
Offers Peace of Mind and Security to Borrowers
The better the coverage of your education loan insurance, the more peaceful you’ll be in your mind. Death and terminal illness of the applicant are covered under almost every education loan insurance but there are a few insurance policies that also provide coverage for critical illnesses such as cancer, heart attack, stroke, paralysis, and so on. In such a situation the borrower may not be able to make regular payments due to medical expenses and the insurance company will pay the remaining loan amount after passing the claim. However, before buying insurance, you must check what is covered and what is not covered in your insurance as this will help you make better decisions.
Reduces Liability on Your Family Members
In most cases, parents are taken as co-applicants for both secured and unsecured education loans. In case of any unanticipated situation when you are unable to repay the loan, the liability will not shift on the co-applicant in case you have education loan insurance. The insurance company will be paying the entire outstanding amount of the education loan instead of the co-applicant.
Income Tax Benefits
There are some Income Tax benefits of including education loan insurance in your strategy. On taking an education loan insurance, you can claim a deduction for paying the insurance premiums under section 80 (C) and section 80 (E) of the Income Tax Act of 1961.
Also Read: You may also be interested in knowing about the differences between education loan refinancing and loan consolidation. To know about the difference between both you must check our blog: Education Loan Refinancing Vs. Loan Consolidation: Choose the Better Option
Should You Take Education Loan Insurance?
Insurance is always a good option to have whether it’s life insurance, health insurance, or education loan insurance. Let’s discuss the pros and cons of including education loan insurance in one’s strategy.
Pros of Including Education Loan Insurance in Your Strategy
Here are a few pros of including education loan insurance in your strategy:
- Banks may provide joint cover i.e. claim can be made in the event of the death of either of the applicants.
- Some lenders may offer up to 0.5% rebate on the education loan insurance interest rate when you opt for it while taking education loans.
Cons of Including Education Loan Insurance in Your Strategy
Here are a few cons of including education loan insurance in your strategy:
- Just like any other insurance, it only protects against unforeseen incidents and not ordinary defaults in payments.
- You may have to pay a premium at fixed intervals of time subject to the terms and conditions of the lender.
Also Read: If you want to know more about the prevention strategies for education loan default then you must read this blog: Education Loan Default: Causes, Consequences, And Prevention Strategies
FAQs
It is mandatory to take insurance on education loans in case of unsecured loans from NBFCs and private banks. And in cases where it’s not mandatory, taking it only helps and saves the co-applicant from liabilities.
The advantages of taking education loan insurance include:
– You get a waiver of 0.5% on the education loan insurance interest rate when you opt for it while taking education loans.
– It reduces the financial burden on co-applicants.
– It protects you against unforeseen incidents.
The premium amount for education loan insurance is between 0.5% – 2% of the total loan amount and may be different for each bank and NBFC.
This blog was all about the role of education loan insurance in your financial planning and strategy. To know more about education loan insurance, 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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