According to the Ministry of External Affairs, over 1.33 million Indian students travel abroad for studies each year, and the number is steadily increasing. As students prepare for their academic journeys, they typically prioritise health and travel insurance to mitigate potential risks. However, a vital component of financial security that many overlook is life insurance.
While life insurance may seem like a distant concern, it acts as a safety net, ensuring that your education loan is covered if anything goes wrong. In this article, we will explore why securing life insurance with education loan abroad is crucial for Indian students, the benefits of having it, and the different insurance options available.
By the end of this blog, you will know
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How life insurance ensures your education loan is covered in the event of death or disability, protecting both the borrower and the co-borrower.
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Why purchasing life insurance early helps keep premiums more affordable.
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Insurance requirements for education loans above ₹7.5 lakhs and how banks like SBI accept alternatives to RinRaksha.
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How life insurance premiums for education loans qualify for tax deductions under Sections 80C and 80E.
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How to choose the right life insurance policy by evaluating financial needs, premiums, and the insurer’s reputation.
Understanding Life Insurance Benefits with Education Loans
Education loan default insurance policies provide that, in the event of illness, disability, or death, the borrower's family will not be burdened with repaying the education loan.
While not always mandatory, some private lenders may require it, and it can cost 1-2% of the loan amount. In case of a covered event, the policy pays the remaining loan amount to the bank, preventing the debt from falling on the co-applicant or family.
To have a better understanding, let's break down the primary advantage:
Protection for the Borrower and Co-Borrower
Parents or guardians co-sign many education loans to help students secure better loan terms. In the event of an unfortunate incident, such as the borrower's death or permanent disability, the co-borrower would typically be responsible for repaying the loan. Life insurance steps in here by paying off the outstanding loan balance, saving the family from financial distress.
Tax Benefits
Life insurance policies that cover education loans may also offer tax benefits. Under Section 80C of the Income Tax Act, premiums paid for life insurance can be deducted from taxable income, potentially reducing the overall financial burden.
Affordable Premiums for Young Borrowers
The earlier you secure life insurance, the lower your premiums will be. For young students, buying life insurance in their early 20s ensures premiums remain affordable and won't increase as they age.
Financial Security in Times of Crisis
Life insurance ensures your education loan is paid off if something unexpected happens. Whether it’s a health crisis, an accident, or worse, the insurance policy covers the loan repayment, sparing your family from additional financial stress during a difficult time.
Is Life Insurance Mandatory for Education Loans Abroad?
While life insurance is not mandatory for most education loans, it is highly recommended. Most Indian banks or financial institutions do not make education loan insurance compulsory.
However, private banks and NBFCs may require it when offering unsecured loans. This is because unsecured loans, which do not require collateral, carry a higher risk for lenders. Having life insurance ensures the loan is repaid if the borrower dies.
Additionally, some banks offer lower interest rates or discounts on loan processing fees for students who opt for life insurance along with their loan. This can make it even more cost-effective for students and their families.
Popular Loan Insurance Options for Study Abroad in 2025
Understanding the different types of life insurance policies is essential for choosing the one that fits your needs. Here are the most common types:
Term Life Insurance
Term Life Insurance is the most straightforward and affordable option. It offers coverage for a fixed period (usually 10-30 years). If the borrower dies during the policy term, the insurance pays a death benefit to the beneficiary. For students, term life insurance is an excellent choice due to its low premiums and simplicity.
Whole Life Insurance
Whole Life Insurance provides lifelong coverage as long as premiums are paid regularly. While premiums are higher than for term life insurance, whole life insurance also serves as an investment vehicle. Over time, it accumulates cash value that the policyholder can borrow against or use for emergencies.
Unit Linked Insurance Plans (ULIPs)
ULIPs combine life insurance and investment. Part of the premiums goes toward insurance coverage, and the rest is invested in market-linked funds. ULIPs can offer higher returns, but they also carry greater risk. If you're looking for both protection and investment growth, ULIPs may be suitable, but they are not recommended for everyone, especially for students who prefer simpler, more stable insurance options.
Student-Specific Insurance Policies
Some insurers offer policies specifically tailored to students studying abroad. These plans may cover tuition fees, emergency medical expenses, and repatriation costs. These policies are an excellent option for students whose families want additional protection against the financial risks associated with studying abroad.
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Is Insurance Mandatory for Loans Above ₹7.5L? Here's What to Know!
When taking an education loan above ₹7.5 lakhs, some banks, like SBI, require students to opt for loan insurance. One Reddit user shared their experience in the r/Indians_StudyAbroad forum, saying:
"I recently took an SBI Global Advantage loan of ₹20 lakhs. They mentioned that the RinRaksha Insurance policy is compulsory. When I escalated the issue, I was told it's mandatory for loans above ₹7.5 lakhs, but any other insurance policy would also work. Is this true, or should I escalate this to the RBI Ombudsman?"
Insight: Yes, it's true. For loans above ₹7.5 lakhs, SBI mandates loan insurance, specifically the RinRaksha policy, but other policies can also be accepted. This is done to protect both the lender and the borrower in the event of unforeseen circumstances, ensuring the loan is repaid even if the borrower becomes unable to repay.
What Does This Mean for You?
If you're taking an education loan above ₹7.5 lakhs from SBI or a similar bank:
- Insurance is compulsory, but RinRaksha is not the only option.
- You can opt for another policy, provided it meets the bank's requirements.
- This is a standard precaution, not an arbitrary rule.
If you're concerned about the specific policy requirement, visit your nearest branch for clarification or contact customer service for a list of accepted policies. Always read the terms before signing up for any insurance.
Planning to study overseas but worried about finances? Don't miss our detailed guide on how to get an education loan for abroad studies.
How to Choose the Right Protection Plans for Education Loan Borrowers?
Selecting the right life insurance policy is a critical decision that involves evaluating several factors to ensure the best coverage. Here's a guide on how to make an informed choice:
Assess Your Financial Needs
Calculate the amount of coverage needed to cover not only your education loan but also living expenses and other debts. Your insurance should cover all potential financial burdens in the event of an emergency.
Understand the Different Policy Types
Research and compare the different types of policies to determine which one offers the best coverage at an affordable price. Consult with financial advisors or your family to get a clearer understanding of what’s suitable for you.
Evaluate Premiums and Affordability
Insurance premiums can vary depending on the type of policy and the coverage amount. Ensure that the premiums fit within your budget. Term life insurance, for example, may be more affordable than whole life or ULIP policies.
Review the Terms and Conditions
Always read the fine print before purchasing a policy. Some life insurance policies come with exclusions or conditions that may not apply to your situation. Make sure the policy covers all your needs, including unforeseen events like critical illnesses or accidents.
Check the Insurer's Reputation
Research the insurer's reputation, particularly regarding claim handling and customer service. Choose a provider known for reliable service, as dealing with claims while abroad can be challenging if the insurer is not trustworthy.
Securing life insurance with education loan abroad is not just about protecting your loan repayment but also safeguarding your family's financial future. Whether you opt for term life insurance, whole life, or ULIPs, the important thing is that you have a safety net in place while pursuing your studies abroad.
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