Bundling of insurance with different loan products is fast gaining ground in the Indian market. While this is common for house insurance, there is another area in which this is steadily increasing. This is in the field of educational loan and both insurance companies and consumers are slowly coming to realise the benefits and implications of the entire combination. The question whether they should go for such an offer is dependent on several factors.
The benefit of the insurance cover that comes along with the loan works like this. The insurance cover will be equal to the outstanding loan. So, if anything happens to the person taking the loan, then there is no problem of repayment as the insurance cover will take care of this aspect. This will be a relief for people, especially when the time period or the loan amount is higher and there is a risk during the intermediate period, and the protection will ensure that the studies are not impacted.
Loan amount and tenure
The amount of the education loan as well as the time period for repayment has to be considered against the paying ability of the individual when they go for an insurance cover. If the loan amount is high, this will be the case when it is taken for foreign education or when the repayment period stretches for a long time, going for an insurance cover makes more sense. It is also important to consider these two factors in conjunction with the financial position of an individual. An amount of Rs 4 lakh can be big for one person but not too high for another. Thus, the financial position of the borrower is important.
In most of the cases the premium paid for an insurance cover will not be very significant and it will not be a big burden as compared with the benefit provided. In such a situation the point to be clarified is whether the premium is paid by the bank from whom the loan was taken or it is being passed on to the consumer. In cases where the bank bears this cost, then the facility becomes an added benefit for the individual.
The scope of the coverage of the policy is important and the individual should try and opt for the option that gives him the maximum benefit. This means that if there is the facility of covering incapacity, then this should also be taken rather than just the death cover as this condition will also impact the ability of the individual to pay back the loan.
(The writer is a Certified Financial Planner)