Term insurance is a form of coverage for specific protection, ensuring that the policyholder gets coverage for a specific period and the family stays protected. One of the most common reasons behind getting term insurance is that a person can secure the well-being of the family as the insurance will provide a certain sum assured to the nominee in the absence of the policyholder.
For a person who has taken a debt or has EMIs running for them, they must go through the process of integrating credit protection into the insurance, and that will allow a person also to cover the loan amount from the insurance premium and in certain situations, one must not face the problems with the ongoing debts.
In this blog, we will discuss credit protection and how it can be used as a rider for a person with long-term debts.
Defining Credit Protection in Term Insurance
Credit protection works as a rider for the term insurance which states that in the death or critical injury of the policyholder, the insurance company will make the debt repayment of the holder and will take the burden of financial woes. A loan agency is there which are working with the insurance companies, and therefore they are providing the credit coverage from a person.
One of the major causes of worry for a person who has taken a debt is that in case of their absence, the family needs to take the heat of the debt repayment, and that can put their loved ones under a critical strain.
Here, the insurance company can make the repayment of the debt on their behalf, and that will ensure the credit dues have been taken care of along with the term insurance.
Understanding True Benefits of Credit Protection
Now, to understand the true benefits of credit protection, one must consider Shyam’s situation. He is a software engineer from Hyderabad who is 35 years old. He got married four years ago and is now the father of a child.
Shyam owns a car and has recently purchased an apartment near his office location. For both of these big purchases he continued his EMIs running. Since he is the sole earner of the family, Shyam took term insurance, which will cover his family after his death.
However, since he has a debt to the lenders therefore, to reduce the risk of repayment from his family, he added the credit protection rider, and that is securing the future of his family. In the last month, he suffered from a critical injury and has taken a non-paid break of 1 year from his office to recover fully.
Here, the insurance company is helping Shyam to make the debt repayment as he is not in the condition of work, and through that, he can protect the family and livelihood of themselves.
Types of Credit Protection
There are broadly two types of major protection, which are there for the person, and the insurance companies offer different premium rates for each of these cases.
- Disability Insurance
The first one is disability insurance, and here, a person can get all the dues covered if they face a major accident or get any disability that will affect their functioning at work.
- Job Loss Insurance
Another aspect is the job loss insurance, and in this situation, a person who is dealing with this gets the assured due amount when a person is going through a transition phase or has lost their job due to weak economic conditions in the country.
Stating the Benefits of Credit Protection
In today’s rapid changes in the market, a person can’t stick to a singular field and do the same type of job. As the industry is modifying, so do the job roles. Hence, getting credit insurance is now more than necessary.
Some agents from the popular DSA app in India also suggest insurance these days to secure and protect the future of the customer.
The first task that a credit insurance agency will do is pay the policyholder’s outstanding debt. In that case, the family can start from a clean slate. Finally, it will protect the person against financial worries and reduce the family’s stress.
These are some of the benefits of using credit protection riders in a term insurance policy.