Education loans are becoming common for students planning to study abroad or in India for higher education. People take different kinds of insurance like health and life insurance to protect themselves from any kind of adversity.
Education loan insurance is a means to reduce pressure on the co-applicant in case the borrower suffers a misfortune or terminal illness. It also helps borrowers in unanticipated situations like the loss of a job. In this blog, we’ll understand the importance of it and why is it a must-have for students.
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Meaning of Education Loan Insurance
Education loan insurance is a kind of safety net that provides financial protection to borrowers of education loans. It prevents the burden that may fall on the co-applicant in case the borrower is unable to pay the loan due to unforeseen circumstances. In such a scenario, the insurance policy provides the funds to repay the outstanding amount thus providing a relief to the co-applicant.
Reasons Why Education Loan Insurance is a Must-Have For Students
Just like education loans help students in achieving their aspirations, education loan insurance saves them from any kind of uncertainty. Think of it this way, whenever you buy an expensive phone worth thousands of bucks, you probably might also consider buying insurance on its display or any other part. Having insurance would cover the cost of any damages that might happen to that part – and eventually, you’ll end up paying less. Instead of paying the actual market price to replace a display, your insurance policy – which would be cheaper, would cover the entire cost.
Similarly, it also helps you in a lot of ways. Let’s look at the reasons for having it to understand it better.
Removes Burden From Co-applicant
As you might know, most lenders accept parents as co-applicants in the case of both secured and unsecured education loans. The most important reason that many students opt for insurance on their education loans is that it saves the co-applicant from paying the outstanding amount and interest in case of any unforeseen circumstances like a terminal illness or death of the applicant. Having insurance will save your loved ones from financial obligation and the insurance policy will cover the loan amount. In other words, the insurance company will be paying the entire outstanding amount of the loan instead of the co-applicant.
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
Does Not Require Separate Payments
You are not required to pay the premiums of education loan insurance separately. In other words, the premiums for It are usually deducted from the net amount of the loan. Taking insurance is a wise move especially if you are not pledging any collateral.
Comes With a Waiver On Interest Rate
If you purchase your education loan insurance while applying for loans you become eligible for a waiver of 0.5 percent on the interest rate. This waiver is very helpful for students given the high cost of both the loan and the insurance.
Is it Mandatory to Take Education Loan Insurance?
Whether taking insurance is mandatory or not while applying for an education loan depends on your lender. It is not mandatory for education loans from government banks but it is mandatory in the case of unsecured loans from private lenders/NBFCs.
In the case of Government Banks
As already mentioned, taking insurance is not mandatory in the case of education loans from government banks. Most government banks leave it to the borrowers to decide whether they want it or not. However, if you choose to take insurance do ask your bank if it provides any insurance loan scheme for study abroad loans. For example, SBI Bank provides the ‘SBI Life RiNn Raksha Scheme’ that provides insurance for education loans.
In the case of NBFCs & Private Banks
All borrowers taking an education loan without any collateral from NBFCs and private banks are required to purchase education loan insurance. So if you are planning to take an unsecured loan i.e., a loan without any collateral then you are required to also opt for insurance as it is mandatory in this case. It becomes mandatory because in case you default on repaying your loan amount, your lender does not have the option to recover the costs from collateral if you have taken an unsecured loan. Hence, insurance gives the assurance to the lenders that in any unanticipated situation when a borrower is unable to repay, the insurance policy will cover the costs.
If you want to know what happens when you default on your student loans then you must read this blog and watch the video mentioned below:
What Happens When You’re Defaulting On Student Loan? Here’s The Answer!
FAQs
There are many benefits of taking an education loan insurance like an education loan insurance reduces the burden on the co-applicant in unforeseen circumstances like in the event of the applicant’s passing or the onset of a terminal illness.
It is not mandatory to take an education loan insurance if you are taking your education loan from a government bank. However, it becomes mandatory in the case of unsecured education loans from NBFCs and private banks.
Yes, education loans can also be insured. You can even take your education loan insurance while applying for the loan.
This blog was all about the importance of education loan insurance for students. To know more about it, 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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