If you aspire to be an international student you may have considered the various ways of funding your education abroad. This is because most countries that accept students from overseas require financial evidence from the candidate to see if they are able to support themselves financially during their study abroad journey. Most students prefer taking up an education loan for this purpose and rely on secure or unsecure education loans. Before you take up an education loan abroad, there are some things you need to know about insurance in an education loan.
An insurance against your education loan will help you reduce your burden of repaying the loan if any unforeseen situation takes place. In most cases, the burden of repaying an education loan lies on the co-applicant when the primary borrower is unable to repay the loan amount. But before we dive into the main things you need to know about insurance in an education loan, let us first understand what that means.
What Is an Education Loan Insurance?
While school loan or education loan insurance is not required, as it is for house loans, banks are requiring borrowers to choose education loan insurance based on the current job market situation. The slowdown in the local economy, along with the uncertainty of global economic conditions, is having a negative influence on the employment market, with poor campus placements and limited career opportunities. In cases where the primary applicant fails to repay the loan in situations of unemployment or death, education loans insurances come to the rescue.
Now that you have understood the importance of insurance against education loans, let us understand the main things you must know about insurance in an education loan.
What Are The Things You Need To Know About Insurance In An Education Loan?
How Helpful Is Education Loan Insurance?
Purchasing loan insurance guarantees that, in the event of a misfortune, the co-applicants are not responsible for repaying the whole education loan amount plus interest. Borrowers of government bank education loans, for which even retired parents are identified as co-applicants, may find this to be a tremendous comfort. If the loan applicant has a tragedy during their higher education that would likely result in a fatal disease for the student, the insurance company will pay the whole education loan amount, rather than the co-applicants.
Is It Mandatory To Get Insurance Against Your Education Loan?
The amount of school loan insurance that is required varies per lender. It is not required to get education loan insurance in conjunction with a study abroad loan when applying for a loan from a government bank. Most government banks allow applicants to choose whether or not to acquire loan insurance as part of any of their education loan programmes. While applying for an education loan without a collateral from a private bank or NBFCs, all students planning to study abroad must get their education loan insured. This is a condition that must be met by every student who applies for an education loan without collateral. The major reason why NBFCs require loan insurance is that they do not require students to put up any collateral in exchange for an overseas study loan. In other words, it is mandatory for students to get insurance on education loans for their study abroad journey, if the education loan is unsecured.
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What Is The Process Of Paying For The Education Loan Insurance?
After students have made their decision to purchase education loan insurance, the next question on their minds is whether the lenders would expect payment of the loan insurance costs right away. Now, here comes the exciting part. Education loan insurance costs are not needed to be paid separately by candidates. These costs are calculated based on the total amount of education loans that students have taken out. For example, if you have taken an education loan of ₹ 25 Lakhs, and the insurance amount is calculated as ₹ 50,000, the lenders will calculate a total loan amount of ₹ 30 Lakh and not ₹25 Lakh. Another thing that all students should be aware of before obtaining an overseas study loan insurance policy is that the loan insurance fees are directly proportionate to the length of the education loan term.
The loan insurance fees are cheaper the shorter the loan term.
Is Purchasing Insurance For Education Loan Really Beneficial?
Borrowing any sort of debt entails taking on a significant financial burden. This is particularly true in the case of an international education loan programme. When students apply for an education loan to pay for their studies abroad, the financial responsibility for repayment rests on their co-applicant/co-borrower until the student achieves financial independence.
FAQs
1. What is the use of insurance for education loans?
Education loan insurance provides financial protection to borrowers in case of unforeseen circumstances such as death, disability, or loss of income. This ensures that the loan will be repaid, even if the borrower is unable to do so.
2. Does an education loan cover health insurance?
Education loans typically do not cover health insurance. However, some lenders may offer health insurance as an optional add-on. It is important to check with your lender to see if health insurance is covered under your loan.
3. Should we take insurance for education loans?
It is generally recommended to take insurance for education loans. This is because education loans can be a significant financial burden, and insurance can provide peace of mind in case of an unexpected event.
4. Is it mandatory to buy insurance for education loans?
In India, it is not mandatory to buy insurance for education loans. However, some lenders may require borrowers to purchase insurance as a condition of the loan. It is important to check with your lender to see if insurance is required.
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