The years 2020 and 2021 have been a roller-coaster ride for many people. In the second quarter of 2020, many individuals got pink slips or their jobs were suspended for an uncertain period.
Imagine, if you have taken a personal loan well within your personal loan eligibility, and suddenly you are served a pink slip or a suspension order due to market conditions. There may also be an event of death or accident of the sole bread earner in the family. A personal loan accident cover can help you pay your EMIs if such an unfortunate event occurs.
Let’s understand the basics of a personal loan accident cover.
A personal loan accident cover can benefit someone who utilises the facility of personal loan often to finance his needs. In other words, a person may prefer taking a personal loan for immediate/planned needs rather than liquidating his investments which may be blocked in long-term securities or real estate. In that case, a personal loan accident cover is recommended for such an individual.
It ensures that in the unfortunate event of death or incapacitation, EMIs are paid on time without having to liquidate the investments. The cover provides a cushion at least for the short or medium-term and reduces the financial stress while you are already under emotional pressure.
Once you understand the insurance product, the first question which comes to your mind is, “What kinds of accidents are covered?”
Generally, the cover offers protection against death, any illness or accidents which prevents you from working or loss of employment. However, if the accident is self-imposed or the loss of employment is due to resignation or fraud, the benefit of insurance cover is not available. Loss of employment due to sabbatical (or break) taken for childbirth is also not covered.
Calculation of Premium
The personal loan accident cover is calculated based on the following factors:
- Sum assured – This is the maximum amount of coverage offered to you in case of an unfortunate event. You may choose to cover a single personal loan or all the personal loans under 1 policy. The premium amount is higher if the sum assured is greater.
- Coverage sought – An individual may be sure of his employment and may seek cover for accident/death alone. In that case, the premium would be lower.
- Age of the individual – Just like any other insurance product, the premium amount increases with the age of the individual.
- Terms of the personal loan – The loan amount, tenure and personal loan interest rates also determine the premium amount. For example, the premium amount is higher if the loan is taken for a period of 10 years rather than 5 years. Further, the premium may be higher if the personal loan is a fixed interest rate loan rather than a floating interest rate loan.
- Monthly EMIs – Using the personal loan EMI calculator, you must have calculated the EMI which can best meet your financial goals. For a personal loan accident cover, the premium increases if the EMIs are higher or are spread over a longer period of time.
The waiting period is the time frame during which the policyholder will not be provided with the insurance cover on the occurrence of the unfortunate events. Every lender has his own policy on the waiting period, from 6 months to a year. Generally, the waiting period is not very long.
Uncertainties cannot be predicted, but one has to be financially prepared for facing the worst outcomes. The personal loan accident cover is one such insurance product that provides financial certainty or stability in times of emergency. The premium payable is certainly very small as compared to the financial security offered. For more information, please visit Tata Capital’s website.