Buying and owning a home of your own is beneficial in many ways. Even though buying a home of your own is huge investment, it is a good one because land is an appreciating asset.
When you purchase a house with the help of a home loan, the loan itself becomes a liability which is payable over a number of years. In the unfortunate event of death or disability of the borrower, the payment of the loan amount shifts to the dependants of the borrower. If the borrower is the sole earning member of the family, it becomes difficult for the dependants to pay the remaining loan amount.
It is known that when a borrower applies for a home loan, the house which is purchased serves as a collateral for the bank until the entire loan amount is paid back. So in the case of death of the borrower, if the dependants are not able to pay the remainder of the loan, the bank has the right to sell the house to recover the remaining amount left on the loan.
Housing Loan protection is an insurance plan which has been introduced by banks where in the case of the borrower’s death or disability where there is loss of income, instead of the burden of the loan falling on the dependants, the loan is paid by the insurance company. Some banks make it mandatory to have a loan protection plan to get the loan approved.
The Housing loan protection plan serves as an insurance which is usually added up together with the home loan which is taken. Insurance companies and the bank provide this insurance as it acts as a guarantee in the event of death or disability. If for example a borrower, takes a home loan of Rs.50 lakh from the bank, the premium on the insurance cover is added to the cost of the loan. So for a 10-year cover, the premium is Rs.60,000, then the total loan amount becomes Rs.50.6 lakh.
The EMI of the home loan will then comprise the principal, interest and the insurance premium. It should be noted that if the insurance premium is paid along with the loan as a component of the EMI, tax deductions cannot be claimed. If the premium is paid separately by the borrower, then the claim on tax deduction can be made.
When it comes to the payment of the Housing Loan protection plan, the structure of payment is very similar to a Term Insurance Policy where the payment options are:
There are mainly two ways by which you can insure your home loan. They are:
Apart from loan coverage in the case of death, most home loan or housing loan protection plans comes with rider plans which are optional but also highly beneficial. Apart from death, these rider plans include:
Purchasing a home or housing loan protection plan might seem to be an additional expense to be paid along with a large amount of money which you have already borrowed and needs to be paid off. However, it is advisable that you do invest in a home loan protection plan in order to safeguard your home as well as your family from any kind of unforeseen circumstances.
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