Home Loan Insurance

Home Insurance Plans:

Home insurance plans, also known as homeowner's insurance, offer coverage to your house and its contents against perils like fire, explosion, lightning, etc. It also offers protection against theft or burglary.

Home Loan Insurance Plans:

Home loan insurance plans or home loan protection plans clear your home loan debt in case you are unable to repay the borrowed amount due to death, disability, or critical illness.

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.

Benefits of Home Loan Protection Plans

1. In the event of unfortunate demines of the borrower, the insurer repays the outstanding loan amount to the lender or the bank.
2. Tax benefits can be availed under Section 80C of the Income Tax Act.
3. The borrower can avail of add-on coverages or riders to enhance your home insurance plan. Disability rider or 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.

Why is Home Loan Insurance Important For Borrowers?

As we already know, a 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.

Features of Home Loan Protection Plans

1. Payment of premium - Most of the home loan protection plans are all single premium policies. This means you 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 installments. 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.
2. Life cover - Most home loan protection plans offer life coverage equivalent to the home loan outstanding amount. As soon as the loan amount is cleared, the cover comes to an end.
3. Riders or Add-ons - Several insurance providers offering home loan 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:
   1. Terminal Illness
   2. Accidental Death
   3. Jobless up to three to six months of EMI payments
   4. Disability

The policy cost along with these additional features is more expensive than the other regular home loan insurance plans.

Aspects to be Considered Before Opting a Home Loan Insurance

1. Term Insurance vs Home Loan Insurance: Term insurance gives fixed coverage; home loan insurance coverage reduces as you repay your loan.

1. Payout Difference: In term insurance, the nominee receives the money; in loan insurance, the insurer pays directly to the lender.

1. Types of Providers: General insurance policies must be renewed yearly; life insurance policies offer long-term protection.

1. Riders and Add-ons: Look for extra benefits like coverage for disability, unemployment, and accidental death.

1. Tenure Match: Always match your insurance period with your loan tenure to avoid coverage gaps later.

1. Cost Increases with Age: Delaying insurance can make it harder and more expensive to get good coverage.

1. Choose Based on Needs: Pick a plan that matches your personal and financial needs, not just the cheapest one.

1. Compare Before You Buy: Review multiple options and make sure your EMI and premium payments stay manageable.

RELEVANT PAGES FOR YOU

1. Calculation Of Home Loan Emi
2. Reasons For Home Loan Rejection
3. Important Banking Related Terms
4. Tax Benefits On Second Home Loan

1. Top Up Loan Vs Personal Loan
2. Loan Against Agricultural Land
   
3. How To Obtain Home Loan After Retirement

1. Loan Against Property Documents Required
2. How To Plan Your Home Loan Emis
3. Home Loan Repayment Period Affects Your Emi
4. Home Loan Approval Time

How are Home Loan Insurance Plans Different From The Other Insurance Schemes?

Regular insurance plans can be purchased anytime. However, home loan protection plans cannot be bought at any given point. It can only be purchased when you have an existing housing loan or applying for a new home loan. Also, home loan insurance schemes are reducing covers that include the outstanding amount of loans only. The cover is only available till the end of the tenure of the loan, unlike other regular insurance policies.

Is Buying a Home Loan Insurance Plan Mandatory?

Purchasing a home loan protection plan is not mandatory. It is completely up to your choice if you wish to buy it or not. However, it is only advisable that you protect your future with a home loan insurance plan.

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