EMI (Equated Monthly Installment) insurance is an insurance policy that covers your loan. If you are unable to pay your loan due to unexpected events like loss of job, disability, or death, EMI insurance will cover your loan payments. This type of insurance is also known as loan protection insurance or payment protection insurance (PPI).
How Does EMI Insurance Work?
When you take out a loan, you can opt for EMI insurance. Depending on the loan amount, the insurance premium is calculated as a percentage of the loan amount or as a fixed amount. If you opt for EMI insurance, the premium is added to your monthly loan payment. If you are unable to make your loan payment due to unexpected events, the EMI insurance policy will cover your loan repayment for a specific period, usually up to 12 months.
For example, if you take out a loan of $10,000 and opt for EMI insurance with a premium of 1% of the loan amount, your monthly loan payment will be $917. If you are unable to make your loan payment due to unexpected events, your EMI insurance policy will cover your loan repayment for up to 12 months.
Benefits of EMI Insurance
EMI insurance provides several benefits:
- Peace of mind: EMI insurance provides peace of mind knowing that your loan repayments are covered if unexpected events occur.
- No impact on credit score: If you are unable to make your loan payment due to unexpected events and your EMI insurance policy covers your loan repayment, there is no negative impact on your credit score.
- Lower risk for lenders: Lenders are more likely to approve your loan application if you opt for EMI insurance as they are assured that the loan will be repaid even if unexpected events occur.
Drawbacks of EMI Insurance
EMI insurance also has some drawbacks:
- Additional cost: EMI insurance adds to the cost of your loan, which means you end up paying more in interest.
- Restrictions: EMI insurance policies have restrictions, which means they may not cover all types of unexpected events that may result in your inability to make loan payments.
- Short-term coverage: EMI insurance policies only cover loan repayments for a short period, usually up to 12 months.
Types of EMI Insurance
There are two types of EMI insurance:
- Single Premium EMI Insurance: With single premium EMI insurance, you pay the entire insurance premium upfront along with your loan amount. This means your monthly loan payment will not include the insurance premium.
- Regular Premium EMI Insurance: With regular premium EMI insurance, you pay the insurance premium as a part of your monthly loan payment.
Factors to Consider When Choosing EMI Insurance
When choosing EMI insurance, consider the following factors:
- Premium amount: Calculate the premium amount and decide if it is affordable.
- Coverage: Check the coverage offered by the EMI insurance policy and ensure that it covers unexpected events that may result in your inability to make loan payments.
- Restrictions: Check the restrictions imposed by the EMI insurance policy.
- Duration: Check the duration of the coverage offered by the EMI insurance policy.
FAQ
Question |
Answer |
Do I need EMI insurance? |
It depends on your personal circumstances. If you have a stable income and are confident that you can repay your loan, you may not need EMI insurance. However, if you are not sure about your ability to make loan payments in the future or if you have dependents who rely on you, EMI insurance may be a good option. |
What does EMI insurance cover? |
EMI insurance covers your loan repayments in case you are unable to make them due to unexpected events like loss of job, disability, or death. |
Can I cancel EMI insurance? |
Yes, you can cancel EMI insurance. However, you may not be able to get a refund for the premium paid. |
Is EMI insurance the same as life insurance? |
No, EMI insurance is not the same as life insurance. EMI insurance covers your loan repayments in case you are unable to make them due to unexpected events like loss of job, disability, or death, while life insurance provides a lump sum payment to your dependents in case of your death. |
Can I get EMI insurance for an existing loan? |
No, you cannot get EMI insurance for an existing loan. You can only opt for EMI insurance when you take out a new loan. |
In Conclusion
EMI insurance provides peace of mind knowing that your loan repayments are covered in case of unexpected events like loss of job, disability, or death. However, it adds to the cost of your loan and has several restrictions. When choosing EMI insurance, consider the premium amount, coverage, restrictions, and duration of the coverage offered by the policy. If you have dependents who rely on you or are not confident about your ability to make loan payments in the future, EMI insurance may be a good option.
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