Have you wondered what happens to your loans if you lose your job, or are disabled or when you die? You need to ensure that your loans are not a burden on your loved ones. Therefore, it is important to insure your loans because there will be some sort of financial aid which will help you during any unforeseen circumstances.
What is personal loan insurance?
Personal loan insurance is also called as credit insurance, loan shield insurance, payment protection insurance, etc. This insurance covers the policyholder’s outstanding loan in the event of sudden disability, loss of job, etc. The most common events covered under a personal loan insurance is death, unemployment, and disability.
If you take a personal loan insurance, your current outstanding loan will be protected. The policy will cover debt payment up to a certain predetermined amount and this will prevent you from defaulting on your loan. The policy will either cover whole or a part of your monthly instalment on your behalf for up to 2 years.
Who is eligible for a personal insurance cover?
Some institutions offer a standard policy that doesn’t factor in your age, gender, etc. but, most policies are restricted to those between the ages of 18 and 65 years, the applicants must be UAE residents and must have continuous employment. The coverage will not offered if the event occurs as a result of drug or alcohol abuse, smoking habits, etc.
If you opt for a cheaper policy, you will get cover for a small amount of the outstanding balance. You must read through the policy document carefully and know when you can submit a claim.
Costs associated with personal loan insurance
There will be a monthly charge that will be added along with your loan payments. Certain banks will charge a one-time fee during the inception of the loan on your total loan amount. The fee will differ significantly based on your age, gender, health, and on coverage you require. Loan insurance ranges between 1 and 1.25% of your loan amount. Most insurance providers sell the insurance at the time your loan begins. You can also choose to wait and get coverage at a later date and save money on the premiums.
Insurance on personal loan is not mandatory and you can take it only if you feel that you require it. Most loan providers and insurance companies team up to provide you loan. The banks are just covering for their potential loss due to non-payment from the borrower. The loan providers do not stand to gain from the premiums that you pay. The loan providers encourage taking an insurance so that they are protected against any future losses. The coverage will be with your insurance company and not the loan providers, so you must ensure that the insurance company is reputable and a credible organisation.