For getting the costly higher education in a foreign university, many students not only need to take out a loan, but also require protection against the risks involved in travelling abroad and staying in the country of study away from home.
“Education loans are a huge financial responsibility, especially if taken to study abroad. Parents either opt to pledge collateral or become co-applicants all the while using personal funds for subsidiary expenses. The total cost of education and the tension of repaying the loan sometimes even compel students to rethink their plans. While the concern is understandable and repayment manageable, life is uncertain. We take insurance for our vehicles, but when it comes to education loans, many overlook the benefits. An education loan insurance is the best solution and plays a significant role during repayment,” said Ankit Mehra, CEO & Founder, GyanDhan.
Mehra lists 4 reasons why one should take insurance cover on education loan:
1. Why should parents take insurance on their child’s education loan?
When students apply for an education loan, the responsibility to repay the loan falls on the co-applicant/co-borrowers, who in most cases are parents, until and unless the student becomes financially independent to repay. Purchasing loan insurance assures that, in the event of a misfortune, the co-applicants are not responsible for repaying the entire education loan amount plus interest. Borrowers of government bank education loans, for which even retired parents are designated as co-applicants, may find this to be a big comfort. Given the cost of any education loan process, education loan insurance policies offer waivers in the interest rates, which comes as a relief for many students. In some cases, in a tragedy that results in a critical injury for the student, the insurance company pays off the entire education loan amount, and not the co-applicants.
2. What will be the benefits if students take Insurance on education loans?
Think of education loan insurance as an airbag in a car that cushions the blow in a car accident. The loan insurance cushions the financial blow to a borrower already going through a hardship.
It safeguards the applicant in the wake of any unforeseen incident, terminal disease, and in some cases, loss of job.
The liability of an overseas education loan insurance does not extend to the family member as they are a co-applicant. However, they benefit from it if the borrower is incapacitated and cannot repay the loan.
Applicants are not required to pay the premiums of an overseas education loan insurance separately as they are already included in the EMIs of an education loan.
In the case of an unsecured education loan from NBFCs, getting education loan insurance for one’s security is a smart decision.
3. What are the types of Insurance that students can take for their secure career?
When it comes to loan insurance, there are three that students can take to secure their career –
- Health Insurance
- Education Loan Insurance
- Student Travel Insurance
4. What if a student defaults for any reason will the insurance company be liable for that?
No. The insurance company is liable to pay the loan amount in the case of a terminal disease or the death of the applicant. However, it also depends on the type of loan insurance the student has taken. Some loan insurance policies are liable in case the student loses employment.