The Importance of Loan Insurance in The Education Loan Process

✓ Education Loan Insurance Fees 

✓ Benefits of Purchasing Loan Insurance

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To most of you, seeking forth an international education loan to pay for higher education may seem like a significant financial risk. Most students who consider using a study abroad loan to fund their higher education abroad are concerned about the repayment process. Many of them are particularly anxious about who would be responsible for repaying the education loan in the event of a tragedy. If something tragic happens to the loan borrowers, the burden of repaying the overseas education loan falls on co-applicants in the international education loan process. Having education loan insurance in place could help relieve the load on the affected education loan borrower's co-applicants.

The following video will help you to understand the same concept on a deeper level.

However, have you ever wondered how loan insurance could be crucial to the entire education loan process? This article aims to clarify certain myths about the same.

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What is Loan Insurance and why is it important?

Most lenders only accept the loan applicant's parents as co-applicants for study abroad loans, which is a well-known fact. This is true for both secured and unsecured education loans. Purchasing loan insurance assures that, in the event of a misfortune, the co-applicants are not responsible for repaying the entire education loan amount plus interest. Borrowers of government bank education loans, for which even retired parents are designated as co-applicants, may find this to be a big comfort.

If the loan applicant has a tragedy during their higher education which might probably result in a terminal disease for the student, the insurance company will pay the entire education loan amount, rather than the co-applicants.

Is it Compulsory To Purchase an Education Loan Insurance?

The amount of education loan insurance that is needed differs per lender. When it comes to government banks' study abroad loan processes, it is not essential to take education loan insurance in addition to the study abroad loan. Most government banks allow applicants to choose whether or not to acquire loan insurance as part of any of their education loan schemes.

It's worth emphasizing that students who apply for secured education loans from government banks are not required to obtain education loan insurance unless they choose to.

When it comes to NBFCs and private banks' international education loan processes, all candidates seeking unsecured education loans must take education loan insurance. This is a criterion that must be met by every student who applies for an education loan here. The main reason why NBFCs insist on the purchase of loan insurance is that none of them asks students to pledge any collateral security in return for an abroad study loan. So, if you plan on funding your higher education with the help of an education loan without collateral, you will be required to purchase education loan insurance.

Let's further discuss the overall cost of an education loan insurance scheme.

How Much Amount Do Lenders Charge as Loan Insurance Fee?

Government banks and private lenders of abroad study loans charge different 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.


Insurance Amount

Government Banks

0.5% to 1% of the entire education loan amount

Private Banks

1.5 percent of the overall loan amount 


2% of the total abroad study loan amount


If you are still confused about purchasing education loan insurance or feel that you are being misguided about the same, reach out to our team at the earliest possible instance.

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Payment Process To Be Followed For Purchasing Loan Insurance?

After students have made their decision to purchase education loan insurance, the follow-up question on their minds is whether the lenders will require the loan insurance fees right away. Now comes the good part. Education loan insurance costs are not required to be paid separately by candidates. These costs are calculated based on the total amount of education loans that students have taken out.

For example, if you had applied for an education loan of INR 40 Lakhs and the loan insurance is calculated to be INR 50,000 then lenders calculate the approved loan amount limit as INR 40.5 Lakhs instead of INR 40 Lakhs. In this way, students do not have to worry about finding sources to fund their education loan insurance.

Another aspect that all students ought to be aware of before acquiring a study abroad loan insurance policy is that the loan insurance fees are directly proportional to the length of the education loan term. The lower the loan tenure, the lesser will be the loan insurance fees.

How Do You Benefit From Purchasing an Education Loan Insurance?

Borrowing any type of loan involves taking over a huge financial responsibility. This is especially true in the case of an abroad education loan scheme. When students apply for an education loan to fund their studies abroad, the financial liability of repaying it automatically falls on their co-applicant/co-borrower, until and unless the student does not gain financial independence. In the wake of an event such as the loan applicant’s death, the responsibility of repaying the entire education loan has to be carried out by their co-borrowers.

Let’s talk about one such loan insurance scheme’s benefits – The SBI Life Rinn Raksha loan insurance scheme. Apart from the fact that the SBI Life Rinn Raksha loan insurance scheme helps applicants with their education loan repayment, there is another hidden benefit. Students who purchase the loan insurance scheme at the time of applying for their education loans, get to avail of an additional 0.5% waiver on their education loan interest rate.

Given the cost of any education loan process in the present circumstances, a waiver in the interest rate comes as a relief for many candidates. Not only does the SBI Rinn Raksha loan insurance scheme reduce the stress of your education loan repayment, but also contributes to reducing the overall interest rate.

Must read: SBI Rinn Raksha loan insurance scheme and why do you need it?

Education Loan FAQs

  • Is it really necessary to get loan insurance when taking out an education loan?

    While loan insurance is not mandatory when taking out an education loan,( for private lenders it is mandatory) it is highly recommended. It provides a safety net in case of unforeseen circumstances, such as death, disability, or loss of income. It ensures that the loan will be repaid, even if the borrower is unable to do so.

  • What happens if I don't get loan insurance and something unexpected happens?

    If you don't have loan insurance and something unexpected happens, such as disability or death, your loan repayments will still need to be made. This can put a financial burden on your family or co-signer if you have one. Loan insurance provides a safety net in these situations, ensuring that the loan will be repaid without causing financial hardship to your Co-applicants.

  • Are there any downsides to getting loan insurance for education loans?

    One potential downside of getting loan insurance for education loans is that it adds an additional cost to your loan repayments. However, the benefits of loan insurance far outweigh the cost, as it provides a safety net in case of unforeseen circumstances. So, we always recommend students take loan insurance while applying for Education Loan.

  • Is loan insurance for education loans similar to health insurance?

    No, loan insurance for education loans is not similar to health insurance. Loan insurance specifically covers loan repayments in case of death, disability, or loss of income, while health insurance covers medical expenses.

  • Do I need to have a co-signer on my education loan in order to qualify for loan insurance?

    No, you do not need to have a co-signer on your education loan to qualify for loan insurance. Loan insurance is available to any borrower who wants to ensure that their loan will be repaid in case of unforeseen circumstances.