The Hindu Business Line : Education loans may come with life cover

New Delhi, July 31 The Government wants the existing education loan scheme to be modified to add on a life insurance cover on the student going in for an education loan from a public sector bank. All public sector banks (PSBs) may also be asked to introduce facility of online request for education loans.

An insurance policy on the life of the student at the time of granting of education loan is likely to result in benefits for both the bank as well as the student.

The issue of modifying the existing education loan scheme (2004) is likely to come up for discussion during the Finance Minister, Mr P. Chidambaram’s meeting with the chief executives of PSBs here on Wednesday.

On the benefits of insurance cover, official sources said that the bank would be able to recover the loan amount from the insurance amount in case of an unfortunate demise of the borrower.

For the student, a habit of taking insurance would be inculcated. A student, who is once covered by life insurance, even after repaying the bank loan, would be inclined to continue with the life insurance policy.

Union Bank already has a provision for an insurance policy in their education loan scheme. To lessen the cost of premium, a convertible insurance policy (convertible into an endownment assurance policy for 5 years) could be accepted, says the scheme.

In cases where the parent/guardian cannot bear the premium cost, the amount of premium during the period of education could be remitted by the bank to LIC to the debit of loan account.

Guidelines

Indications are that the Finance Minister may ask the Indian Banks’ Association (IBA) to incorporate specific clauses for life insurance (on the lines of the Union Bank’s scheme) in the model education loan agreement circulated by it to banks for implementation.

The IBA may also be asked to provide broad guidelines to banks regarding the material to be published in the loan forms about insurance options available to students.

Meanwhile, PSBs may also be asked to provide facility of web-based online request for education loans. A presentation is likely to be made by Corporation Bank, which already offers such a facility.

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