Loan: Should you insure your loan or not? When should you insure it and when should you not? Don't be confused by what the agent says..

Often, when you go to a bank or NBFC for a personal loan, home loan, or car loan, the agent tries to sell you another product: loan insurance. They claim that if, for some reason, you are unable to repay the loan, this insurance will cover your EMIs or reduce the burden on your family.

At first glance, this seems reasonable, but in reality, loan insurance isn't always beneficial. Sometimes, it's simply a way for the bank or agent to earn a commission. Therefore, purchasing insurance without understanding can be detrimental.

What is loan insurance?

Loan insurance is a policy that ensures that if a borrower is unable to pay EMIs for any reason, the insurance company will pay the remaining EMIs. Its purpose is to protect the bank or lender from default risk. However, note that this protection is for the bank, not your family. This means that the bank gets its money, but your family doesn't directly benefit.

When is loan insurance necessary?
Insurance isn't necessary with every loan, but it can be a wise move in certain circumstances.

1. Home Loan or Large-Amount Loan
If you have a long-term home loan or business loan, insurance can provide relief to you and your family.

2. If You Are the Sole Breadwinner
If you are the sole breadwinner in your family and you die or lose your job, this policy can cover the remaining loan.

3. If Your Profession Is Risky
For those in hazardous jobs or the medical industry, this insurance is essential.

Keep a close eye on this one thing about your loan; you'll never fall into a debt trap, and you'll save money!

Keep a close eye on this one thing about your loan: you'll never fall into a debt trap; you'll save money!
When Should You Not Take Loan Insurance?

Sometimes banks or agents scare you into buying this policy, but it's not necessary in every case.

1. If you already have life insurance

If you have sufficient term insurance, there's no need to purchase separate loan insurance. Your term plan provides complete protection for your family.

2. If the loan is for a short term

For example, if a personal loan is for 1-2 years or a car loan is for a very small amount, paying an insurance premium on it is useless.

3. If the EMI is a small portion of your income

When EMIs are only 10-15% of your income, the cost of additional insurance can be a burden on your pocket.

Don't be confused by agents.

Agents or bank officials often say that loans won't be approved without insurance, but this is completely false. Both the RBI and IRDAI have clarified that loan insurance is never mandatory. Often, customers, confused, purchase policies that later prove to be useless.

You'll be in trouble! If you consider loan settlement and loan closure to be the same thing, find out who will ruin CIBIL!

How much is the loan insurance premium?
If you take a loan of ₹10 lakh for about 5 years, you may incur an insurance premium of ₹10,000-12,000. This premium can vary, and you can bargain. This premium is either collected in one lump sum or added to the loan amount. This means, in some cases, you also pay interest on it.

Does loan insurance offer tax benefits?
Some loan insurance premiums may be eligible for tax benefits, but this depends on the type of insurance. If the policy falls under the life insurance category, it may be eligible for a deduction under Section 80C. However, if it is only a credit protection policy, there is no tax benefit.

You will go for a loan but will return with a sad face! These 5 things can become obstacles in your path; see the full list immediately.

You'll go for a loan but come back disappointed! These 5 things can become obstacles in your path; see the full list immediately.
How to make the right decision?
1. Compare: Compare the premiums and coverage of different insurance companies.

2. Don't blindly trust the agent's words: every advice may be fraught with commissions.

3. Consider your needs: If your loan is small or you already have term insurance, there's no need for additional insurance.

4. Read the policy document: Before signing, be sure to understand its "Exclusion Clauses," meaning under what circumstances a claim will not be accepted.

Conclusion
Loan insurance is a good safety net, but it is not necessary for everyone. If you have a large loan, family dependents, or your health is at risk, it's wise. However, if your loan is small, EMIs are under control, and you already have term insurance, there's no need to buy insurance based on the agent's advice. Always remember that loan insurance is protection for the bank, not for you.

Disclaimer: This content has been sourced and edited from Dainik Jagran. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.