Importance of Having a Home Loan Insurance Policy in India

How will our loved ones cope financially and emotionally after we are gone? This question haunts almost every one of us. We always ponder about the well being of our loved ones in case of any eventuality. For this very reason, we make sure we have sorted our finances and protect them even before the eventuality strikes. Buying a home is a dream come true for many. It is not just an investment but an emotional milestone. Having an existing home loan is a huge responsibility. If you are someone who has a huge home loan and are worried who will repay it after you are gone, it is time you read about home loan insurance policies in India.

What is Home Loan Insurance?

Also known as “Mortgage Loan Insurance” or “Home Loan Protection Plan”, a home loan insurance policy takes care of your home loan debt in case of eventualities like death, critical illness, or permanent disability.

How is it different from a home insurance?

Unlike home loan insurance, a home insurance plan only protects you against risks to your property that are caused by an earthquake, fire, theft, storm, etc. It does not help your dependents pay the total outstanding home loan amount in your absence.

Features of Home Loan Insurance

• Most of the home loan insurance plans are single premium plans. However, there are few insurers who allow you to make annual payments. In most of the cases, the premium for your home loan protection plan is included in your home loan and is paid in your home loan instalments.
• In the event of the death of the insured, a lump sum amount equivalent to the outstanding home loan is paid to the nominee and the policy will be terminated.
• Most home loan insurance plans do not have maturity benefit as the sole purpose of the plan is to cover the outstanding loan amount in case of any eventuality.
• The Sum Assured keeps reducing every year as the outstanding home loan reduces.
• The Death Benefit is usually tax-free.
• The term of the home loan protection plan is equivalent to your home loan tenure.
• Insurers prefer the entry age of the applicant to be at least 18 years and the maximum entry age is 50.
• Loan facility is usually not allowed.

Importance of home loan insurance

• When a borrower passes away and the dependents are unable to pay off the home loan, the lender has the right to foreclose the property and sell it away to collect the debt. However, the lender incurs massive foreclosure charges to do so. If the borrower has an active home loan insurance, it helps the lender avoid bad debts.
• In case of any eventuality, a home loan insurance protects one's family and dependents from debt. The insurer will pay the outstanding home loan amount and your loved ones will be safe.
• When you buy a home loan protection plan, you will be allowed to choose add-on covers that protect you from permanent disability, critical illnesses, and job loss. This will protect you from when the eventuality strikes. If you have these add-ons, the outstanding loan amount will be paid not only in case of death of the policyholder but also during a disability or critical illness of the borrower.
• You can avail tax benefits under Section 80C of the Income Tax Act for the death benefit you get under the home loan insurance plan.

Final Words

It is not mandatory to have a home loan insurance plan. You can choose not to have one. So, if your lender processes your home loan and asks you to pick up a loan protection plan, you have the right to tell no. However, before you make a decision, consider the advantages of having a comprehensive home loan insurance plan.