Loans are common in our society, be it for buying a house, car, education or any other important needs. However, every time you borrow money, you take on a significant financial risk. What if you lose your job, become disabled or pass away? These and other unexpected situations can make it difficult or impossible to repay your loans. That’s where loans insurance comes in.
What is Loans Insurance?
Loans insurance, also known as loan protection or credit insurance, is a type of coverage that pays your outstanding loans or debts in case of certain events or circumstances. Depending on the policy, these events may include:
Event |
Description |
|---|---|
Death |
If the borrower dies during the loan term, the insurance pays off the remaining balance. |
Disability |
If the borrower becomes disabled and unable to work, the insurance may cover the loan payments or pay off the balance. |
Involuntary job loss |
If the borrower loses their job due to reasons beyond their control, such as layoffs or business closure, the insurance may cover the loan payments for a certain period or pay off the balance. |
Critical illness |
If the borrower is diagnosed with a specified critical illness, such as cancer or heart attack, the insurance may cover the loan payments or pay off the balance. |
Note that loans insurance is optional and usually requires an additional premium, which can be a percentage of the loan amount or a fixed fee. Also, not all types of loans or debts are insurable, and the coverage and exclusions may vary depending on the policy and the insurance company.
Why Get Loans Insurance?
Loans insurance can provide several benefits and peace of mind, such as:
- Ensuring that your loans or debts are paid off in case of unexpected events or circumstances.
- Protecting your credit rating and avoiding late fees or defaults that can hurt your financial reputation.
- Relieving your family or co-borrowers from the burden of your loans or debts if you pass away or become disabled.
- Allowing you to focus on your recovery or finding a new job without worrying about your loan payments.
However, loans insurance may not be necessary or suitable for everyone. Here are some factors to consider:
- Your age, health, and occupation: If you are young and healthy, with a stable job and income, the risk of unexpected events may be lower, and the premiums may be higher than your potential benefits. Conversely, if you are older, have a pre-existing medical condition, or work in a risky or unstable job, the risk and cost of loans insurance may be more justified.
- Your loan amount, term, and interest rate: If you have a small loan with a short term and low interest rate, the cost of loans insurance may not be significant, and you may prefer to save the premiums or use them for other purposes. Conversely, if you have a large loan with a long term and high interest rate, the cost of loans insurance may add up and make up a substantial part of your monthly payments.
- Your alternative sources of income or assets: If you have other sources of income, such as savings, investments, or other insurance policies, or if you have assets that you can sell or leverage in case of emergency, such as a house or a car, you may not need loans insurance as much as someone who relies solely on their income or has limited assets.
How to Get Loans Insurance?
To get loans insurance, you usually need to follow these steps:
- Choose the type of loans insurance you need, based on your loan type, amount, and term, as well as your risk and coverage preferences.
- Compare the loan insurance offers from different insurers, based on the premiums, coverage, terms and conditions, and reputation of the insurers.
- Fill out the loan insurance application form, providing accurate and complete information about yourself, your loans, and your health and occupation.
- Undergo a health and occupation screening process, which may include a medical exam, a blood test, or an interview with a medical or insurance professional.
- Receive the loan insurance policy from the insurer, which should include the premiums, the coverage and exclusions, the claim process and requirements, and the renewability and cancellability of the policy.
Before you sign up for loans insurance, make sure you understand the terms and conditions, the premiums and fees, the claim process, and the potential benefits and risks. Also, make sure you compare different offers and choose the one that suits you best, based on your needs and budget.
FAQ
What is the difference between loans insurance and mortgage insurance?
Loans insurance and mortgage insurance refer to similar types of coverage, but with some differences. Loans insurance can cover any type of loan or debt, such as personal loans, car loans, student loans, or credit card debts, and can pay off the balance or the payments in case of certain events. Mortgage insurance, on the other hand, is a specific type of insurance that covers mortgage loans, which are usually used to buy a house, and protects the lender, not the borrower, in case of default or foreclosure. Mortgage insurance is often required if the borrower has a down payment of less than 20% of the home value, and can be paid by the borrower or built into the mortgage payments.
Can I cancel or change my loans insurance policy?
Yes, you can usually cancel or change your loans insurance policy, subject to the terms and conditions of the policy and the insurer. Some policies may have a cooling-off period, during which you can cancel your policy and receive a full refund of the premiums. However, after the cooling-off period, you may incur a penalty or forfeit some of your premiums if you cancel your policy. You may also be able to change your coverage or adjust your premiums, depending on the insurer and the policy options.
Does my loans insurance cover all my loans or debts?
No, your loans insurance may only cover certain loans or debts, depending on the policy and the insurer. For example, some policies may exclude credit card debts or personal loans, or may only cover loans from certain lenders or financial institutions. Make sure you read the terms and conditions of your policy carefully and understand what loans or debts are covered and excluded.
Do I need to have a good credit score to get loans insurance?
No, your credit score may not affect your eligibility for loans insurance, as it is not a primary factor in determining your risk or coverage. However, your credit history and payment patterns may affect the premiums and the terms and conditions of your loans insurance, as they may indicate your financial stability and responsibility. Some insurers may also use your credit information to screen and assess your application for loans insurance.
Can I get loans insurance if I already have pre-existing conditions or disabilities?
It depends on the policy and the insurer, as well as the severity and nature of your conditions or disabilities. Some policies may exclude certain pre-existing conditions or disabilities, or may charge higher premiums or offer lower coverage for such cases. On the other hand, some policies may offer specific riders or additions to cover certain pre-existing conditions or disabilities, such as cancer or blindness. Make sure you disclose your conditions or disabilities truthfully and accurately in your application for loans insurance, and ask the insurer about the options and limitations of coverage.