Home Loan Insurance
Home loan insurance, also known as mortgage insurance, has become extremely popular in today’s world due to the increasing prices of properties. Since the events in our lives are unpredictable, most people tend to secure their future along with the future of their loved ones with the help of home loan insurance. To know how it benefits us, we must know what home loan insurance is.
What Is Home Loan Insurance?
A home loan insurance plan is a scheme under which the insurer will settle the outstanding Home Loan amount with the lender or the bank in case of an unforeseen situation. Some of the comprehensive home loan insurance plans offers cover for the applicant, the house, and all its contents. The premium that is paid towards home loan insurance is applicable for tax benefits.
Why Is Home Loan Insurance Important For Lenders?
Lenders do not like their loans to turn into bad debts. Obviously, they would want to protect their money. In order to avoid a home loan turning into a very bad debt, lenders need home loan insurance. In the event of the borrower’s demise, the lender will be losing out on a lot of money, especially when the borrower was the only earning member of the family.
Why Is Home Loan Insurance Important For Borrowers?
As we already know, home loan insurance plan covers the outstanding home loan amount in a situation where the borrower fails to pay his/her debts. Such a situation may arise due to the borrower’s job instability or his/her demise. You may choose a regular plan or opt for one that comes with additional features and riders more enhanced coverage. Home loan insurance is important for the borrowers as it ensures that the dependents of the borrowers don’t become homeless in his/her absence or crisis situation.
Aspects To Be Considered Before Opting A Home Loan Insurance:
The ways that you may choose to insure the home loan are mentioned below:
- Term insurance – It is purchased so that all your liabilities and debts are taken care of.
- Separate home insurance – This insurance scheme only takes care of your home loan outstanding when you are unable to pay it off.
Most of the home loan insurance schemes offer reducing coverage with them. The size of the coverage is linked to the home loan outstanding. Thus, the sum insured goes down when an individual repays the loan amount. However, in case of a term insurance, coverage stays the same. In case of term plans, the sum assured is received by the nominee who can make the payments to the lender or the bank for settling the loan. In case if a home loan insurance plan, the insurer directly makes the payments for the home loan outstanding to the lender for settling the loan.
Home loan insurance can be purchased either from a general insurance company or a life insurance company. The ones that are offered by the general insurance companies need to be renewed on an annual basis. The policies offered by life insurance companies are for longer terms.
It is of utmost importance that you ask about the riders and add-on covers. It is beneficial to get a plan that covers situations like unemployment and disability, along with death. Also check if the policy covers just natural demise or accidental demise too.
The loan tenure and insurance cover period must match. It is not advisable to opt for a shorter cover period thinking that you will extend it later. There lies a very strong chance that you might forget to extend in the long run. Also, as you grow older, it only becomes difficult for you get a good coverage. Even if you get one, it will be pretty expensive.
Features Of The Home Loan Protection Plans:
- Payment of premium – Most of the home loan protection plans are all single premium policies. This means you make to make payment for the premium only once. As the amount of the premium is pretty high, lenders often add the premium amount to the loan amount. The borrower pays the premium along with the equated monthly instalments. For example, if you borrow a loan amount of Rs.30 lakh and the home loan protection that you opt for costs Rs.1.5 lakh, you will have to pay your EMIs calculated on Rs.31.5 lakh.
- Life cover – Most home loan protection plans offer life coverage equivalent to home loan outstanding amount. As soon as the loan amount is cleared, the cover comes to an end.
- Riders or Add-ons – Several insurance providers offering home loans insurance schemes provide optional rider plans to enhance their cover benefits. The riders that can be availed with home loan protection plans are mentioned below:
- Terminal Illness
- Accidental Death
- Jobless up to three to six months of EMI payments
The policy cost along with these additional features is more expensive than the other regular home loan insurance plans.
Benefits Of Home Loan Protection Plans?
- In the event of unfortunate demine of the borrower, the insurer repays the outstanding loan amount to the lender or the bank.
- Tax benefits can be availed under Section 80C of the Income Tax Act.
- The borrower can avail add-on coverages or riders to enhance your home insurance plan. Disability rider r critical illness rider ensures that the outstanding loan amount is covered not only in case of an unfortunate demise, but also during a disability or critical illness of the borrower.