Does It Make Sense to Opt for Personal Loan Insurance in the UAE?
Personal loan insurance has been known by several names such as Payment Protection Insurance, Credit Insurance, Loan Shield Insurance, and a lot more. But these all offer a similar level of coverage. In this article, we will explain what exactly personal loan insurance is all about and whether or not should you opt for the same.
Personal Loan Insurance: What is it all about?
Personal loan is the type of insurance that is basically designed to protect the policyholder’s outstanding loan in case of any unfortunate event such as sudden disability, loss of employment, etc. Moreover, the most common events covered under such type of insurance policies are often disability & death, loss of a job. Whether you need personal loan insurance is because of unemployment or due to disability, this type of insurance helps in protecting monthly loan payments and safeguard the policyholder from default.
How Does Personal loan Protection Insurance Work?
If you currently have an outstanding loan and unfortunately you lose your job or meet with some other hazard then the insurance policy helps you to meet your monthly debts a maximum of the pre-specific amount. In this manner, it prevents you from defaulting on your loan. It will pay whole or some part of monthly EMIs on your behalf usually from 12 to 24 months as these insurance policies provide short-term protection. However, it depends on the insurance provider as well as the policy you opt for.
The privileges of an insurance policy can either be utilized to pay off a personal loan in UAE or any other type of finances. Policies are generally offered for people who are between 18-65 years of age and also they are working at the time of buying an insurance policy. In order to be eligible for loan protection insurance, policy buyer often has to be self-employed for a certain period of time or he/she has to be employed at least 16 hours a week on a long-term contract.
Well, there are basically 2 different types of personal loan insurance policies:
- Standard Insurance Policy: Some companies offer a standard policy that is offered irrespective of the age, gender, occupation & smoking habits of the policy buyer. The policy seeker can decide what amount of insurance cover he/she wants. Standard policy is easily available as the majority of the companies offer this type of policy. Please note that the maximum insurance coverage is 24 months.
- Age-Related Insurance Policy: For an age-related insurance policy, the amount is determined on the basis of age as well as coverage amount that policy seeker wants to have. And the maximum insurance coverage is 12 months. The insurance might be less expensive for younger policyholders because insurance companies believe younger people are likely to make fewer insurance claims in comparison to older people.
Is Opting For Personal Loan Protection Mandatory for all Borrowers?
Of course, not! This is optional insurance coverage that is provided by banks to people who offer a personal loan in UAE. There is no compulsion by the Central Bank that every borrower must buy it. Thus, it is the choice of borrowers whether or not they want to avail it.
Some Important Things to keep in Mind
- Make sure, you read the terms and conditions carefully.
- Give proper attention to when the insurance coverage starts.
- Insurance coverage is with the insurer and not with the bank. So, do not forget to check the insurance company’s market value and reputation before availing it.
- Some insurance policies say that the claim can be submitted after 60 to 90 days of disability or loss of a job. It means that you would have to pay the outstanding loan for 3 months on your own before submitting an insurance claim.
The Final Verdict
Although opting for personal loan insurance is not mandatory for all people who borrow a personal loan in UAE, buying it definitely makes sense. Because it covers outstanding loan payments up to a certain amount if the policyholder unable to pay due to unemployment, disability or any other unfortunate event.