February 12, 2020
Education Loan, Loan Insurance, Loan Protection Insurance, Student Health Insurance
In our previous blog, we explained what loan insurance is and how lenders use it to safeguard loan repayments against default on part of the borrower due to death or disability.
Of late however, Student Cover has found that many lending institutions such as banks and NBFCs have been deceiving students into purchasing overseas health insurance plans along with their loan products. This is done by deceptively bundling health insurance premium with loan insurance amount and blinding them to purchase student health insurance plans from their associate health insurance provider.
Sadly, most students fall for this age old trick and purchase student health plans that may be of no use to them overseas. Therefore, in this blog, Student Cover tries to highlight the main difference between student loan protection insurance and student overseas insurance that could help students to take an informed decision.
The main difference between loan insurance and student health insurance is their respective purposes. The loan insurance plans that include cover against disability or loss of life is taken to ensure that the loan repayment obligation is met even if the borrower dies or becomes disabled, thereby making him unable to repay the loan.
Student health insurance on the other hand is meant to provide financial cover to the student in the event of medical treatment. It includes payment of medical expenditure incurred by the student resulting from a treatment due to urgent or non-urgent sickness/injury.
In case of loan insurance, the main beneficiary of the insurance is lender. The insurance payout in case of death or disablement of the borrower goes to the lending institution and not to the student or his or her nominee. On the other hand, the primary beneficiary in case of Student Health Insurance is the student as it is his medical expense which is borne by the insurance company.
In most countries like USA, Canada, Australia etc. it is mandatory for foreign students to have a health cover for them to be permitted to study in a college or university. While most of these universities require students to purchase a health plan from University sponsored insurance company or any other local insurance company, with other Universities student may be allowed to purchase an international plan. Therefore, most of the times a student health insurance sold by lender may be counted as a double insurance for a student as he/she has to buy another plan which fits the scheme of the respective University.
Loan insurance on the other hand does not have any such mandatory requirement. Although most lenders in India require student to pay the premium for loan insurance taken on their behalf by the lending institution, not having a loan insurance does not affect a student’s ability to study in a college or university overseas.
Loan insurance and student insurance differ greatly in terms of coverage periods. While the coverage period of loan insurance may extend to, in some cases, 10 years, the coverage period of student health insurance is mostly one year or max. of 3 years in some cases.
Since the loan insurance is meant to provide cover against the loan amount which could run into several lakhs of rupees, it naturally has a very high premium. On the other hand, the premium for student health insurance depends on sum insured and coverage. However, they are far less costly than the loan protection insurance.
While taking loan, students are advised to carefully go through the loan offering and try to distinguish between loan protection insurance and health insurance. While one is aimed to protect the lender against default in repayment, the other is intended to insure the student against medical expenses arising out of sickness or injury. The premium for loan protection insurance is very high as compared to health insurance. A student should take informed decision when it comes to student health insurance and should ask the lender to remove the health insurance component from the loan insurance package if he or she doesn’t find it useful.
Disclaimer: The content of this blog is based on personal research of the writer. Readers’ discretion is advised. Neither Student Cover nor the writer will be held responsible for any wrongful interpretation of the content of this blog.
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