Loan Protection Insurance: Needs and Necessities

Anyone can have financial needs at some time, and if they are unprepared or underfunded, they may end up taking out a loan. Loans have traditionally assisted individuals in solving their financial difficulties and demands, whether it was a quick cash constraint brought on by an emergency or unforeseen expenditure or a vehicle or home purchase or a loan for business.

Secured loans, however, need security or a guarantee, where the lender is permitted to seize possession of the item in the event of non-payment. Unsecured loans on the other hand, are provided easily and without the need for any collateral.

But what if something unfortunate happens, making it impossible for you to repay the loan? What happens to the cash you borrowed? Who will be in charge of making the repayments and how will you go about doing so?

The unpredictable nature of life may cause anybody to default on a debt in the case of certain occurrences including fatal accidents, physical disabilities, life-threatening illnesses, and unemployment. In this scenario, the close family members take on the weight of the debt, which turns them into unwelcome financial obligations.

An answer to these issues is loan protection insurance, which protects your loan in the event of non-repayment or late payments. Let’s simplify it:

What is Loan Protection Insurance?

A loan insurance plan covers the debt you borrowed, much like a life insurance plan covers your life. Loan coverage protects your monthly loan payments in the event of the principal borrower’s death, temporary or permanent incapacity, or loss of employment.

The borrower is shielded from loan default by the loan protection plan. As in these instances, the insurance provider firm is obligated to pay the whole balance of the loan. However, the insurance policy you select will determine the coverage amount and the circumstances covered. You may get loan insurance on a number of loans, including small business loans, house loans, business loans, student loans, and even personal loans.

How Does Loan Insurance Operate?

For a set period of time, often between 12 and 24 months, loan protection insurance aids the borrower in repaying the monthly loan installments. The loan amount and the kind of insurance the borrower chooses are taken into account while finalizing the details. These plans are available to employed policyholders between the ages of 18 and 65. The person must work a minimum number of hours a week in a job or for a certain amount of time as a self-employed person to be eligible.

There are two primary categories of insurance policies: regular plans and age-related policies. A specified premium payment must be made for each policy for the policyholder to be eligible to receive benefits during periods of unemployment or disability. Death benefits are also a service offered to clients by some insurance firms.

How are Loan Insurance Premiums Chosen?

Similar to other types of insurance, the policyholder must pay a premium before registering for a loan protection insurance coverage. The cost of the premium varies across banks and financial services companies in India. It relies on a few elements, including:

  • Loan Amount: The amount owed and premium have a direct correlation. A big loan amount entails a hefty premium that must be paid.
  • Repayment Period/Duration: If the loan’s tenure is lengthy, a significant premium must be paid.
  • Age: Older people pay a greater premium than younger people since it is believed that younger people tend to file fewer claims because they are more likely to be working and in good health.
  • Health: People in poor health must pay a higher premium since they are more likely to file claims at that time.

What kinds of insurance are there for loans?

Typically, loan protection insurance products fall into one of two categories. They are listed below.

Standard Policy

The age, gender, and employment of the policyholder are not considered in the typical loan protection insurance policy. The maximum coverage length is 24 months, and the policyholder can choose the level of coverage they need. Most loan providers provide this kind of loan insurance generally. Additionally, the loan insurance doesn’t start paying until after the first 60 days of exclusion.

Age-related Policy

The maximum coverage term under the age-related loan protection insurance policy is 12 months, with consideration given to the policyholder’s age and the level of coverage they choose. Because they are more likely to file fewer claims, younger people are often charged lower rates. Due to declining health and unemployment, older people are more prone to file claims.

With this understanding of the many loan insurance kinds and how they differ, it is crucial to select the policy that best suits your needs and to carefully review all the terms, restrictions, and exclusions before deciding.

What Justifies Choosing Loan Insurance?

  • Many loan insurance policies offer a life insurance policy to all borrowers, which secures the debt.
  • When a loan is not repaid, loan insurance covers your family members for a variety of loans, including those for housing, cars, personal loans, education, businesses, loans against property, and merchandise loans.
  • Both the principal borrower and a secondary borrower, or co-borrower in the event of a combined loan, may purchase a loan insurance plan.
  • According to current tax legislation, the policyholder receives tax benefits under the loan insurance plan.

Purchasing a Loan Protection Plan? Here are Some Crucial Considerations.

  • Loan insurance is not mandatory to be purchased. Despite the fact that the lender could urge that you purchase a loan protection plan.
  • You have full authority to make decisions. As having coverage is preferable for financial security, the plan, nevertheless, keeps you worry-free for the duration of your loan’s tenure.
  • You must conduct thorough study according to your needs because the terms of the coverage and the quantity vary from provider to provider and on plans as well.
  • The majority of loan protection plans only provide coverage for resulting physical disability and accidental deaths. Natural disasters and unemployment are seldom mentioned. So, while purchasing a loan protection plan, you must do your research.
  • Comparing the coverage and costs of various loan protection policies is crucial.
  •  When purchasing an insurance, always make sure the premiums are reasonable because they may initially affect your EMIs.

Wrap Up

You may protect yourself from unforeseeable events that are out of your control by purchasing loan protection insurance. You may rest easy knowing that in the case of something bad happening, your family will be protected by the insurance.

Connect with ARTH for any and all your loan protection insurance needs, and we will be pleased to provide you with the appropriate solutions and guidance. Loan protection insurance enables you to prevent your family from having to bear needless costs. When the occasion calls for it, take out the loan, but also make sure you have insurance. It is better to be safe than sorry, as the proverb says.

Top 5 Mistakes to Avoid When Applying for a Small Business Loan

financial inclusion

A business loan can now be acquired through an easy and convenient approach. The age of the applicant, the amount of time of the business’s existence, and its yearly revenue are all included in the lender’s clearly defined qualifying requirements. Additionally, they require some important documents, such as the owner’s or establishment’s KYC documents, evidence of the business address, and financial records, to be submitted with the loan application. Many lenders now take a more flexible stance in response to market competitiveness and in recognition of the time restraints faced by business owners. They have lowered the load of required documentation, improved the application procedure, and accelerated fund release. Some lenders have adopted an entirely digital application process, while others are prepared to help customers at their doorstep if necessary.

To increase the chances of getting small business loans application approved, keep an eye out for these following pitfalls:

Not Registering Your Business 

Numerous MSMEs in India, especially those classified as micro-enterprises, complain that the procedure for registering a business is complicated. However, one of the greatest advantages of registering is having access to resources. A firm must be officially registered in order to be eligible to receive funding from banking institutions, private lending institutions, and other government programs. When approving MSME loans, the majority of lenders request documentation pertaining to business registration. An application for small business loans can be denied if the proper documents are not submitted. Hence, registering a firm is essential.

Having a Bad Credit Score

A customer’s creditworthiness is shown by their credit score. The greater this number, the more likely it is that the borrower will make timely loan repayments. Lenders are more confident when borrowers have higher credit scores, as that indicates better money management. Additionally, it can lessen the profile of the customer’s risk. Due to the higher perceived risk, lenders may reject a borrower’s application if they have a low credit score. Therefore, it always pays to keep your credit score high through responsible financial management such as by paying your EMIs on time. 

Not Doing Enough Research on Lenders

Since borrowing money is a significant financial choice, consumers must compare several lenders in the market and select the one with the best terms and offers. Additionally, choosing the appropriate loan product for a business is essential. Due to the wide range of small business loans alternatives available on the market, borrowers must now perform extensive research to decide the type of loan they must obtain to accomplish their business goals. At this point, it is also necessary to take into account elements like business loan eligibility, interest rate, tenure, terms and conditions, etc.

Negligence During Verification Process 

To be eligible to apply for small business loans, you must fulfil the requirements established by the bank or financial institution. Additionally, you must provide specific documents for verification. Rejection can stem from not meeting the eligibility requirements or from missing documents. This can be avoided by checking the criteria in advance so that you can organize all of your documents and make sure that any spelling or name errors are fixed. By reducing the likelihood that your business finance loan will be rejected, you can save time and effort.

Avoiding Common Loan Mistakes!

Before you start making a loan inquiry, it is essential to understand the potential outcomes and restrictions. Your company’s growth can be significantly smoother if a business finance loan is used wisely. Thus, by having your documents available and being completely honest about your financial situation, you can prevent these kinds of problems if you have a firm understanding of the type of MSME loans you’re looking for and which lender to reach out to. 

Indian Women Owned Small and Nano Enterprises: Prospects and Obstacles

Over the last few decades, India has achieved enormous strides in the area of women’s empowerment. In India’s economic growth narrative, women entrepreneurs have become a powerful force, boosting the GDP and generating job possibilities. However, despite the government’s programmes and regulations, women-owned small and nano Enterprises still encounter difficulties that limit their capacity for expansion and sustainability.

We will talk about the potential and limitations that WSNEs in India must deal with in this blog post, as well as Arth’s role in resolving these issues.

Opportunities in India for Women-Owned Small and Nano Businesses

Governmental Programmes: The Stand-Up India programme, the MUDRA programme, and the Mahila Udyam Nidhi programme are just a few of the several efforts the Indian government has put in place to encourage female entrepreneurs. These programmes provide female entrepreneurs financial support, mentoring, and training. The Public Procurement Policy, for example, stipulates that 3% of purchases from micro small and medium enterprises (MSMEs) must come from women-owned businesses.

Adapting Behaviors: The Indian culture is changing and becoming more welcoming to women’s employment. This shift in perspective is fostering an atmosphere where women entrepreneurs may start and operate their firms.

Technology: Women entrepreneurs may now launch and manage enterprises from any location in the nation because of technology. Women entrepreneurs are now able to offer their goods and services online and access a larger client base thanks to e-commerce platforms, social media, and digital marketing tools.

Increasing interest in niche goods: The demand for specialized goods and services is rising as a result of shifting customer tastes. WSNEs can take advantage of this chance by providing distinctive goods and services that target particular market niches.

India’s Constraints on Women-Owned Small and Nano Businesses

Lack of Access to Finance: Women business owners frequently struggle to obtain financing owing to a lack of collateral, a poor credit history, and a lack of financial understanding. Because banks and other financial institutions are reluctant to lend to women business owners, there is a funding gap that restricts their ability to develop.

Social and Cultural Barriers: Social and cultural challenges that women business owners in India must overcome include patriarchal attitudes, gender prejudices, and stereotypes. Because of these obstacles, people’s movement is frequently restricted, they have fewer networking chances, and they have less access to knowledge and resources.

Infrastructure Deficit:  Access to essential infrastructure like energy, water, and transportation is difficult for women business owners. Their capacity to expand their operations and access new markets is constrained by a lack of infrastructure.

Managing Family and Work Commitments: Women company owners sometimes have to balance several duties, such as running their companies and taking care of their families. This juggling act can be difficult, particularly when there is little support from society or family.

Regulatory and Legal Obstacles: Legal and regulatory barriers that women company owners must overcome make it difficult for them to run their companies efficiently. Complex laws, expensive compliance expenses, and a lack of knowledge of legal and regulatory standards are some of these obstacles.

The Role of Arth in Resolving These Issues

Arth is a social enterprise that works towards empowering WSNEs in India. Through its various initiatives, Arth has helped thousands of women entrepreneurs overcome the challenges and constraints they face. Some of the ways in which Arth has contributed are:

Financial Support: Through its msme financing programme, Arth offers WSNEs financial support. This programme provides loans to female company owners at reasonable interest rates, allowing them to grow their enterprises and enhance their standard of living.

Capacity Development: To assist WSNEs in acquiring the skills and knowledge necessary to operate prosperous enterprises, Arth runs training and capacity development programmes. These courses address subjects including marketing, technology adoption, and financial management.

Market Linkages: Arth helps WSNEs access new markets and customers by providing them with market linkages and networking opportunities. This enables WSNEs to scale their businesses and increase their revenue.

Conclusion

In India, women entrepreneurs are becoming a more significant force in the nation’s economic growth. They yet continue to experience obstacles that restrict their potential. It is crucial to establish a helpful environment that gives female entrepreneurs access to resources like funding, infrastructure, knowledge, and mentoring in order to overcome these obstacles. A healthy ecosystem for women-owned small and nano Enterprises in India would also be greatly aided by removing societal and cultural hurdles and providing equal opportunity for women entrepreneurs. Women entrepreneurs may make a big contribution to India’s economic success narrative and build a more inclusive and equitable society with the correct resources and chances. Arth’s contribution in addressing these challenges is commendable, and it is essential for other stakeholders to follow suit and support the growth and development of WSNEs in India.