A group personal accident (GPA) policy covers accidental death and disability. A group such as a bank or an NBFC can design such a policy to cover borrowers. This notably helps secure the loan amount in case the borrower meets with an accident.
Insurance for borrowers
Why is it needed?
There is a large market for personal and working capital loans today. These are unsecured in nature. Any accident resulting in the death or disability of the borrower would lead to non-payment of the pending EMIs on the loan, especially if the borrower is the sole breadwinner. Non-payment would lead to an eventual write-off. Thereupon taking a borrower GPA policy would help the lending institution prevent loss due to write-off in case of the borrower’s death or disability.
How does it work?
A borrower GPA policy like other similar policies is renewable yearly. The insurance provider decides the sum insured based on either the amount of loan or the amount due at any given point in time. Just like any other group policy, this one too allows for regular endorsements or amendments. This means that the lending institution can add new loan borrowers to the policy and remove borrowers who have repaid their loans. Insurance providers usually allow endorsements to a group personal accident policy on a monthly basis, depending on the volume of additions/deletions. The insurer charges/refunds the premium on a proportionate basis for additions/deletions.
Typically, the lending institution charges the customer for the insurance premium and finances it as part of the loan. The regulations specify that buying this borrower GPA is not mandatory; the borrower can also opt for a loan without this accident cover.
To settle a claim against a borrower’s GPA policy, the insurance provider needs the following documents:
- Death/disability certificate of the borrower
- Proof of loan with the amount of loan and disbursal date (loan agreement document)
- Outstanding loan amount
- Valid photo ID card of the borrower
- Electronic fund transfer details of the lender
Who is the beneficiary?
The most important aspect of this policy is determining the beneficiary of the claim amount. Most insurers pay the claim amount to the nominee/legal heir of the deceased borrower. The lender then has to recover the unpaid loan amount from the nominee/legal heir. This can be a tedious process and is not always successful. However, SecureNow provides solutions whereby the insurer pays the claim amount to the policyholder, i.e., the lender. This suits the lender’s purpose of taking the policy. It also ensures a smooth process for the recovery of loans where the borrower is unable to pay due to an accident.