Understanding Loan Insurance: Necessity Or Luxury?2 min. read
Risks are part of our everyday lives. The way creditors see it, tragedies can occur everyday, and this does not exempt clients who borrowed money from them. As a way to protect their money, they may require borrowers to get loan insurance. However, how important is this insurance and what does it do?
What is loan insurance?
Also known as credit life insurance, this is a type of life insurance that aims to protect creditors from the risk of interference of credit payment due to unforeseen circumstances.
Collateral credit insurance works both as both as credit collateral and credit insurance, which happens when the debtor dies or fails in his obligations badly due to certain circumstances such a death, injury, loss of job, and others.
Will there be a premium?
Just like any other type of insurance, credit insurance has a premium too. The amount of premium will vary from one bank to another depending on the following factors:
Age of debtor: The premium tends to be higher for older people or employees who are near their retirement rate.
Amount of loan: If the amount of loan is high, then the premium will also be high since the possible obligation in unfortunate circumstances is bigger.
Time of loan: The duration of the loan can determine the amount of premium, i.e. the longer the time of payment, the higher the premium.
Final question: should you get credit insurance or not?
Before you decide whether or not you need loan insurance, ask yourself the following questions:
What is included in the policy? There are many loan insurance packages out here on the market, but they do not offer the same type of coverage. While some packages only offer claims or collateral for deaths, others include other events such as unemployment and disability.
What is the requirement? In some policies, you need to borrow a certain amount of money before you can avail of credit insurance. Will it also cover smaller loans, or do you need to have a huge loan before you can get one? Find out the requirements and you will know whether you need it or not.
How much will the premium cost? If the premium for a credit insurance policy requires you to pay exorbitant fees every month—and you’re not even getting a comprehensive package—then you might just want to steer clear of loan insurance and just add it to your loan payment.