Education Loan Insurance: All You Need to Know

Key takeaways from the blog:

• Benefits: Eases financial strain, acts as a safety net, and offers interest rate incentives.
• Coverage: Encompasses tuition fees, living expenses, healthcare costs, and repayment charges.
• Compulsory: Yes, it's a must-have! Find out more about eligibility and required documents.
• Costs: Varies - PSB (0.5% - 1%), private banks (1% - 1.5%), NBFC (up to 2%).

For more in-depth insights, dive into the full blog!

Education loan applications have witnessed a 17% surge in the past five years. Taking an education loan is a wise decision for several reasons. It provides protection against rising education expenses due to factors like inflation, currency fluctuations, and exchange rate variations. Additionally, education loans can help offset the impact of TCS (Tax Collection at Source) rates on payments made abroad, which attracts a 0.5% charge beyond Rs 7 lakh. Moreover, they offer potential tax benefits, leading to long-term cost savings.

These factors highlight the growing trend of students opting for education loans to finance their study abroad endeavors. It's important to acknowledge the associated insurance component and delve deeper into understanding its significance.

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What is education loan insurance?

Education loan scheme is a type of insurance specifically designed to provide financial protection to borrowers who have taken an education loan. It acts as a safety net in case the borrower is unable to repay the loan due to unforeseen circumstances. Education loan insurance typically covers the outstanding loan amount, ensuring that the burden does not fall on the borrower's family or co-applicant. In the event of a covered contingency, the insurance policy provides the necessary funds to repay the loan, relieving the borrower and their loved ones from the financial obligation.

What are education loan insurance benefits?

Several education loan insurance benefits are: 

• Having student loan insurance reduces the burden on both you and your co-applicant when it comes to loan repayment, allowing you to concentrate on your studies and future job prospects. It provides valuable support in case of unexpected circumstances such as terminal illness or other unforeseen situations. With student loan insurance, you can have peace of mind knowing that your financial obligations will be taken care of, enabling you to focus on your education and prepare for a successful career ahead.
• In most cases, the cost of insurance is already factored into the loan amount, eliminating any additional burden on you. Additionally, in some instances, the insurance premium itself is included in the loan amount. This means that you don't have to worry about separate payments for insurance, as it is already accounted for in the overall loan package.
• Opting for bank-provided education loan insurance, such as the SBI Rinn Raksha for education loan scheme, can bring you significant benefits. By choosing this insurance, you can avail a concession of 0.50% on the interest rate offered to you. This concession translates into substantial savings on the interest paid over the long term. It is a valuable opportunity to reduce your overall loan expenses and make your education more affordable in the extended run.

Also Read: Education loan vs self-funding 

What all is covered under education loan insurance?

Education loan insurance typically provides coverage for various aspects related to the education loan but this may differ from policy to policy and depending on the lender that you choose. Here are some common elements that may be covered in education loan insurance:

• Tuition Fees: The insurance policy may cover the outstanding tuition fees of the educational institution in case the borrower is unable to repay the loan due to unforeseen circumstances.
• Living Expenses: It may cover the cost of living expenses incurred during the course of education, ensuring that the borrower or their family is not burdened with these expenses in case of a contingency.
• Loan Repayment Protection: In the event of the borrower's disability, critical illness, or death, the insurance coverage may provide the funds necessary to repay the outstanding loan amount, relieving the borrower's family or co-applicant from this financial obligation.
• Pre-Existing Medical Conditions: Depending on the policy, some education loan insurance plans may provide coverage for pre-existing medical conditions of the borrower, ensuring that they are still protected despite any existing health issues.

Also Read: Expenses covered under education loan

Eligibility and document requirements for education loan insurancea

One of the greatest advantages of education loan insurance is that it seamlessly integrates into the loan application process. Most lenders offer the option to opt-in for education loan insurance, saving you valuable time and effort. By choosing this option, you eliminate the need to go through a separate application process, gather additional documents, or worry about meeting eligibility criteria. Since the lender already has your necessary documents, it streamlines the entire process and ensures a hassle-free experience for you.

Read more about: What Happens to Education Loans When Borrower Dies in India?

Watch this video and know everything about loan refinancing in a simple way so you can make a smart decision

Importance of Insurance on Education Loan

Insurance on education loans is crucial for safeguarding both the borrower and their family from unforeseen financial burdens. In the event of the borrower’s death or permanent disability, insurance ensures that the outstanding loan amount is covered, relieving the co-applicant or guarantor from the repayment obligation. This protection prevents the family from facing severe financial distress during challenging times. Additionally, some policies offer coverage for critical illnesses or accidents, providing a comprehensive safety net. Opting for loan insurance also enhances the borrower’s creditworthiness and can lead to smoother loan approvals. Overall, education loan insurance offers peace of mind, ensuring that the pursuit of higher education does not become a financial liability for the borrower’s family.

Is insurance mandatory for education loan abroad?

The decision to purchase education loan insurance for abroad education loans varies among lenders. In the case of government banks, it is not mandatory to buy education loan insurance alongside the study abroad loan. Most government banks that provide education loans leave it to their applicants to decide whether to purchase loan insurance under any of the education loan schemes offered by them.

When it comes to NBFCs and private banks offering abroad education loans without collateral, the purchase of education loan insurance is compulsory for all applicants. This requirement is applicable to every student seeking an education loan without collateral. The reason behind this mandatory insurance is that these institutions do not require students to provide any collateral security for their study loans. Therefore, if you are planning to finance your higher education through an unsecured education loan, acquiring education loan insurance becomes a necessary step to fulfill.

How much amount lenders charge as education loan insurance fees?

An overview of loan insurance fees from different lenders can be seen below -

Let's now understand these fees in detail with the help of the points mentioned. 

• Government banks and private lenders of abroad study loans charge different loan insurance fees. In the case of secured education loans, government banks charge around 0.5% to 1% of the entire education loan amount as loan insurance fees.
• Government banks generally offer loan insurance schemes provided by their in-house loan insurance lenders. For example, SBI provides abroad study loan insurance through the SBI Rinn Raksha scheme. As mentioned in the previous paragraph, it is not compulsory to purchase an education loan from government banks.
• Coming to the education loan insurance fee charged by NBFCs and private banks for unsecured education loans, private banks charge about 1.5% of the total loan amount as an education loan insurance fee while NBFCs charge close to 2% of the total abroad study loan amount as loan insurance fee. Purchasing education loan insurance is a compulsory requirement of NBFCs for students because of the absence of collateral security.

Payment process for purchasing loan insurance

After students finalize their decision to buy education loan insurance, the next thing on their minds is whether there would be an immediate requirement for loan insurance fees from the lenders. Well, here’s the good part. 

• Candidates are not required to make a separate payment of their education loan insurance fees. These fees are adjusted with the total education loan amount availed by students. For example, if you had applied for an education loan of INR 40 Lakhs and the loan insurance is calculated to be INR 50,000 then lenders calculate the approved loan amount limit as INR 40.5 Lakhs instead of INR 40 Lakhs. In this way, students do not have to worry about finding sources to fund their education loan insurance.
• Another important part that all students need to know before purchasing an abroad study loan insurance is the fact that the loan insurance fees are directly proportional to the length of the education loan tenure. The lower the loan tenure, the lesser the loan insurance fees.

When it comes to navigating the complexities of education loans and insurance for your study abroad plans, GyanDhan is here to assist you. With numerous lenders and policies to consider, it can be challenging to keep track of all the options available. GyanDhan simplifies the process by doing the legwork for you. We provide expert guidance and present you with the best education loan options tailored to your needs. Additionally, we offer recommendations on education loan insurance, ensuring that you have comprehensive coverage for your financial security. Check your eligibility with GyanDhan and take the first step towards your study abroad aspirations with confidence.

Read more about:

• Abroad Education loan for Indian students
• Should You Opt for SBI Life RiNn Raksha Policy?
• Education loan vs self-funding
• Expenses covered under education loan
• Abroad Education Loan without Parental Income
• Study Abroad Scholarships for Indian Students
• SBI abroad education loan
• Abroad Education loan interest rate

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