“What will happen to my home loan after me?” The answer to this question is ‘loan insurance’, but should you take it?

When we take a loan to buy our dream house or car, along with happiness there is also a fear in our mind – “If something happens to me, the burden of this loan will fall on my family.” Designed to remove this fear loan insurancealso known as ‘Loan Protection Insurance’. This is a kind of financial security blanket, which protects your family from falling on the streets in bad times.

But should everyone take it? Is the bank salesman giving you the right advice? Let us understand it in very simple language.

When does it become ‘necessary’ to take loan insurance?

There are some circumstances where taking loan insurance becomes almost mandatory:

1. You are the only earning member in the family: If all the household expenses depend on you, then it may be impossible for the family to pay the loan installments in your absence.
2. Job or income is not stable: If you are in a profession where there is a lot of fluctuation in income or there is a risk of job loss, then this insurance can become your shield.

When can you ‘avoid’ taking it?

It is not necessary to take insurance on every loan. You can avoid taking it in these situations:

1. You already have adequate term insurance: This is the most important thing! If you already have a good term life insurance, the amount of which is sufficient to repay all your loans, then there is no need to buy a separate expensive loan insurance. This would just be a waste of money.
2. Your financial position is very strong: Even if you have enough savings and investments to repay the loan easily, you can avoid this extra expense.

How does it work?

It is very simple. You pay a premium at the time or after taking the loan. If any untoward event specified in the policy occurs (such as death, permanent disability or in some cases, loss of job), the insurance company pays the outstanding loan amount directly to the bank. This money does not go to your family, but is directly used to clear your debt.

Take these precautions before taking a decision

• Compare with term insurance: Many times it is cheaper and more beneficial to take a top-up term insurance than loan insurance.
• Don’t be pressured by the bank: Banks often insist on selling insurance along with the loan, but it depends on your wish.

conclusion: Loan insurance is a very useful product, but it is not for everyone. Take the decision only after considering your need, financial condition and existing insurance cover.