Education loan is one of the most sought-after options for students to pay for their education abroad. However, getting a loan to pay for higher education abroad may seem like a big financial risk to many of us because who would repay the loan in case of an emergency? Well, the answer to this could be loan insurance.
But how does it work and what are its benefits? Here's all you need to know about insurance on education loans:
What does an insurance on education loan do?
Most lenders only accept the loan applicant's parents as co-applicants for ‘study abroad’ loans. This is true for both secured and unsecured student loans. By purchasing loan insurance, you can be sure that the co-applicants won't be responsible for repaying the whole amount of the education loan plus interest in the event of an unforeseen circumstance such as a terminal illness as the insurance company will take care of it.
What are the benefits of getting an insurance on education loan?
An already struggling borrower's burden is softened by loan insurance. It protects the applicant after any unanticipated event, a terminal illness, and occasionally, a job loss. Since the family member is a co-applicant, the foreign education loan insurance does not cover them. However, if the borrower becomes unable of repaying the debt, they stand covered as their liability now shifts to the insurance company.
Additionally, the premiums for overseas education loan insurance are already included in the EMIs, and therefore, applicants are not required to pay them individually. Getting college loan insurance for one's protection in the case of an unsecured education loan from an NBFC is a wise move.
In addition to these benefits, students who purchase the loan insurance scheme at the time of applying for their education loans are eligible for an additional 0.5 percent waiver on their education loan insurance interest rate. A waiver in the interest rate of education loan insurance can be a relief for many students given the high cost of any education loan in the current environment.
Is it compulsory to get insurance with an education loan?
The protection offered for student loans varies from lender to lender. It is definitely not essential to get education loan insurance in addition to the ‘study abroad’ loan when it comes to the government banks' international education loan process. Most government banks let their clients decide whether to purchase it through one of their schemes for student loans.
However, in the international education loan procedure of NBFCs and private banks, all candidates for an education loan without collateral must purchase education loan insurance.
It is important to know that in the event of a student default, the insurance provider will not cover the loan. It is only obligated to repay the loan in the event of the applicant's passing or the onset of a terminal illness. However, it also depends on the type of loan insurance the student has purchased.