Credit protection: Assurance for both lenders and borrowers
Sonika Paul, 33, was on the fast track for a promotion at her corporate job. She worked hard, earned well, and was living it up. The cancer diagnosis came as a bolt from the blue.
In the initial months after her diagnosis, she managed to juggle work and family commitments. But as her cancer was slow to respond, she was soon confined to her home. After a period, her income from the law firm tapered off. The doctors could see some improvement, but recovery would take a long, long time.
This period was a major strain on Sonika’s finances. The medical bills kept piling up. She had no choice but to dip into her savings. Her parents, both pensioners, were helping as well. But Sonika had a home loan of Rs 27 lakh to pay off. How would she manage?
Komal Sharma, 29, was another customer with the same lender. She had taken an education loan of Rs 12 lakh a few years ago to fund her MBA studies. Since completing the MBA and landing a good job, she had paid off about Rs 7 lakh.
But one night, while taking a shuttle home from work, the car she was in collided with a speeding truck. There were no casualties, but Komal lost the use of her legs. This threw everything out of gear for her.
Her father had passed away a few years ago and she had an ailing mother to take care of. They had some income from a couple of rented properties. This covered the basics. But there was the loan to think about.
Credit protection for institutions
Fortunately, their lender had group credit protection in place. So, when Sonika and Komal lost their stable jobs due to serious health conditions, the lender did not send debt collectors their way.
Assurance of loan repayment
Unpaid loans are a non-performing asset for financial institutions. It is not good for business because they result in losses. That is why credit protection is essential, especially now when the loan market is booming. One defaulter may not make much difference. But a lender with many defaulters would have cause for concern.
The credit protection plan gives the lender assurance of loan repayment. The policy comes into play if the borrowers either die or are unable to earn to disability or illness. Without such a plan, the lender has to try to recover its money from the defaulting customers. But credit protection offers financial support in such a situation.
When a borrower dies or loses their source of income due to illness or disability, the credit protection plan takes over the loan amount. This way, the lender is assured of repayment. In addition, the borrower (or their dependents) does not face a big burden of debt.
The HDFC Life Group Credit Protect Plus Insurance Plan is one such policy. This comprehensive group policy comes with six plan options. The underwriting process is quick and a single premium payment is all that is required.
Critical illness covered
Financial institutions can add scheme members to the plan at any time. But they should be between 18 and 70 years of age. The plan also features a death benefit and critical illness rider for added members. The plan covers up to 19 critical illnesses and conditions. These include cancer, stroke, loss of limbs, loss of sight, and coma, among others.