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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.
Last Updated : 04 Oct 2023A 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 offer cover for the applicant, the house, and all its contents. The premium that is paid towards home loan insurance is applicable for tax benefits.
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.
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.
The ways that you may choose to insure the home loan are mentioned below:
Most home loan insurance schemes offer reduced 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 the case of term insurance, coverage stays the same. In the 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 the case of 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 to get good coverage. Even if you get one, it will be pretty expensive.
When you plan to purchase a particular protection scheme, ensure that it matches all your requirements. Compare various products in the market and pick the one that suits you the best. Before you bundle up your EMI payments with premium payments, sort your expenses.
The policy cost along with these additional features is more expensive than the other regular home loan insurance plans.
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.
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.
Home loan insurance and home insurance are completely different. However, they sound similar and people often get confused between the two terms.
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.
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