A loan product is one of the most efficient ways of gathering funds to handle expenses. With the variety of loan products available, you can get customized loan products for buying a house, getting a new car, furnishing your house, etc. But if something happens to the borrower, the burden of the loan will be passed on to the family members. To ensure that this does not happen, insurance companies provide an insurance plan known as Group Loan Insurance.
What is Group Loan Insurance?
A group loan insurance works as an insurance cover for the loans that a financial institution has provided to its customers. This product is provided to institutions that have the license to provide loan products such as home loans, car loans and personal loans to customers. With the help of this insurance, the insured’s outstanding loan amount will be paid off in the event of their demise or if they default in making the payments towards the loan.
When this insurance product is taken by a loan providing institution, the loan product holders will be under the policy as single insured members. The lender will have to pay premiums just like a regular insurance policy. The premium calculation process is akin to when a policyholder buys online life insurance cover. The sum assured and the term of the policy will be considered when deciding on the premium amount.
Features of Group Loan Insurance:
- Group loan insurance plans offer a dual benefit – securing the loan for the lender and providing support to the borrower.
- The comprehensive coverage offers financial protection in the event of critical illness, total permanent disability, terminal illness and death of the lender.
- Tax benefits as per the prevailing guidelines.
- Multiple premium payment modes as per the convenience of the policyholder.
- Some insurance companies also offer a moratorium period of around 7 years.
- Leading insurers offer a choice of a single life as well as joint life coverage for co-borrowers.
- The policy coverage term can range from 2 years to 35 years.
- Option to choose from different cover options – Reducing Cover or Level Cover
Types of Group Loan Insurance:
- Level cover:
Under the level cover, the sum assured will be fixed for the term’s tenure. This coverage option is for interest-only loan products.
- Reducing cover:
Under the reducing cover, the sum assured will reduce in sync with the loan schedule, as explained in the certificate of insurance. The repayment amount depends on different factors like loan type, amount, age of the member, interest rate etc.
This insurance product can provide financial support to a borrower’s family in their time of need. For instance, let’s say the loan holder has passed away because of a critical illness. But because he was covered by the group loan insurance, his family will not have to bear the brunt of his outstanding loan.
Hence, if you are authorised and licensed to disburse loans, then a group loan insurance policy is a good investment. They will not only secure your business but also ensure that the loan holder’s family is financially protected in difficult times.