Education Loan Insurance

1. If a permanent disability stops the borrower’s ability to work, then this insurance policy settles the remaining balance and prevents a medical tragedy from evolving into lifelong financial battles. 

1. During job loss, some policies also act as a bridge where insurance helps manage the installment temporarily, keeping your credit score unaffected while the borrower searches for the new job. 

1. Some policies help cover the debt already accrued in cases where a medical condition or emergency forces a student to drop the course mid-term. 

Components of Education Loan Insurance 

1. Coverage for existing medical conditions if the borrower has pre-existing medical conditions. 

1. If the borrower is unable to repay the loan due to unexpected events, then insurance may cover the remaining tuition fees and living expenses related to the course. 

1. In cases of critical illness, death, or disability, the insurance can help repay the outstanding loan amount. 

Key Benefits of an Education Loan Insurance 

Below are the major benefits of opting for an education loan insurance policy in India: 

1. Having an education loan insurance provides peace of mind to students and allows them to focus on their studies without worrying about loan repayment risks. It also reassures families, knowing that the loan will be taken care of in case of emergencies. 

1. If a student is unable to work due to physical or mental disability, education loan insurance helps settle the remaining loan amount. This prevents loan defaults, protects credit history, and reduces financial pressure during recovery. 

1. Most education loan insurance plans at a low cost. The premium usually depends on the loan amount and repayment period, making it manageable for students. 

1. These insurance plans usually cover death, disability, and sometimes course discontinuation. Such coverage helps students stay protected against common risks. 

1. When loan payments stop, it can lead to legal problems and poor credit scores. Education loan insurance helps prevent such issues by ensuring the loan is paid on time. 

Various Types of Education Loan 

Education loan insurance is mainly available in two forms: term insurance and life insurance.  

1. Term insurance plans: A term insurance plan covers the loan for a fixed period. If something happens to the student during this time, the insurer pays the outstanding loan amount. 

1. Life insurance plans: It offer wider protection as these plan covers death and permanent dysfunctionality and sometimes include savings benefits. They usually cost more but provide long-term security. 

Selecting the Right Education Loan Insurance  

Choosing the correct education loan insurance policy is important as it can impact your finances in the long run. Before choosing a policy, there are a few points you should keep in mind. 

• Loan amount and tenure: A policy should match the total loan amount and the repayment period. The coverage needs to be enough to clear the full loan if required.
• Premium amount: The premium amount of the policy should be affordable and fit within your budget. It is always better to compare a few policies before making a final choice.  
• Reputation of the insurer: An insurance provider with a good reputation and smooth claim settlement process is always a safer option.
•  Additional coverage options: Some policies offer extra coverage for situations like job loss, critical illness, or inability to complete the course. These benefits can be useful in certain cases.
• Policy exclusions: Every insurance policy has exclusions. It is important to read the policy details carefully to understand what is not covered, such as specific medical conditions or types of disabilities. 

Need of Education Loan Insurance for Overseas Education

The need to buy an education loan insurance for studying abroad depends on the type of lender. Different lenders follow different rules for loan insurance. 

In the case of government banks, education loan insurance is usually not compulsory. Most public sector banks allow students to decide on their own whether they want to buy loan insurance under the education loan schemes offered by them. 

However, the rules are different for NBFCs and private banks that provide education loans without collateral. In such cases, purchasing education loan insurance is mandatory for all applicants. This applies to students who are taking an unsecured education loan. 

Since these lenders do not ask for any collateral security, loan insurance acts as a form of protection for the. As a result, students planning to fund their higher education through anon-collateral education loan must take education loan insurance to meet the lender’s requirements.  

Education Loan Insurance Fees Charged by Lenders

The fees charged for loan insurance depends upon three types of lenders explained below: 

Insurance Charges by Government Banks

Government banks usually keep insurance costs on the lower side, especially for education loans that are backed by collateral. In most cases, the insurance cost is around 0.5% to 1% of the total education loan amount when collateral is provided. Since the loan is secured, students are often given the choice to opt for insurance or skip it. 

Insurance Schemes Offered Through Bank Partners

Most public sector banks have tie-ups with their own insurance providers. These banks offer education loan insurance through these partner schemes. However, taking loan insurance is usually optional, and students can decide based on their financial comfort and risk preference. 

Insurance fees for unsecured loans by private lenders and NBFCs

For unsecured education loans, private banks usually charge around 1.5% of the total loan amount as insurance fees.  As these loans involve more risk for the lender, the insurance becomes compulsory. The fee is calculated as a percentage of the total loan amount and is usually higher for Non-Banking Financial Company (NBFCs) compared to private banks. 

Note: “Charges may vary depending on lender and policy.” 

Payment Process for Education Loan Insurance

1. No separate payment required: Students are generally not asked to pay the insurance fee upfront. The insurance amount is added to the total education loan and adjusted within the sanctioned loan amount. 

1. Insurance cost depends on loan tenure: One important point to keep in mind is that the insurance fee is linked to the loan repayment period. A shorter loan tenure means lower insurance charges, while a longer tenure can result in higher insurance costs. 

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