Education Loan Insurance: All You Need to Know

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.

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.
   

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.

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 loan 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.

An overview of loan insurance fees can be seen in the table below - 

Lets, 's now understand these fees in detail with the help of 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.

Education loan insurance varies among lenders. Government banks don't mandate it, while NBFCs and private banks offering unsecured study-abroad loans require it. It protects students without collateral security.

Depending on your profile and creditworthiness, HDFC Credilla can charge anywhere between 2% - 5% of the loan amount as education loan insurance. 

Typically, the premium is 1% of the loan amount, although you can use the SBI Life Rinn Raksha Policy Premium Calculator to get a clearer picture. You get an additional 0.50% discount on your education loan rate of interest.