Home Loan Insurance

For salaried Indians, buying a home is a must, but it’s also very expensive, so they have to get a home loan. Even if you’re sure you’ll be able to pay back the loan, there are a lot of things that could go wrong along the way, like death, illness, disability, or being out of work.

Getting your home loan insurance helps you pay off the rest of the loan, even if you’re going through hard times and there’s a chance you might lose your home. Usually, the insurance plan, which is also called a Home Loan Protection Plan (HLPP), comes with a home loan from the bank. Even though the Reserve Bank of India says that banks can’t sell other products along with home loans to make money, you should still ask for it.

There are three types of home loan insurance plans that lenders offer:

Under home loan insurance or HLPP, if the borrower dies before the loan is paid off, the insurance company pays off the loan with the bank or financial institution. There are also extra protection in case of illness or disability. There are a few things about home loan insurance:

• Pay the mortgage off: The home loan insurance company sends the beneficiary a lump sum that can be used to pay off any outstanding home loan fees.

• Policy lapse: The insurance policy could end if the home loan balance is transferred, if the loan policy is changed, or if the loan amount has been paid in full.

• Tax benefits: Section 80C of the Income Tax Act says that the borrower can get a tax break on the premium paid for home loan insurance (ITA).

• Option for a joint loan: If you choose a joint loan, you only need one home loan insurance policy even if there are more than one borrower.

• Extra coverage: Some home loan insurance policies offer extra coverage for diseases and disabilities through “rider” policies that cost more money.

Home loan insurance can be replaced with term insurance, which costs less. Term insurance can cover a variety of debts, including a home loan, among others. Those who already have a term insurance policy don’t have to get separate home loan insurance if they want to get a home loan. Instead, they can have their coverage extended.

Let’s look at how term insurance and home loan insurance are different:

• Premium cost: A term insurance plan for Rs 2 crore costs between Rs 20,000 and Rs 25,000 per year. At the same time, you would have to pay a premium of about Rs 1,00,000 for the extra cover for home loan insurance.

• Life insurance: Financial institutions offer special term insurance plans with benefits if the person outlives the plan’s length of time and a death benefit that can easily pay off the home loan if they die during the plan’s term. But with HLPP, if the full amount of the insurance is paid, the life cover will slowly go down until it is zero as the term ends.

• Modifying the cover: When it comes to a term plan as a life cover, the beneficiary can increase or change the cover based on their financial needs. But you already paid the HLPP premium at the start of the term, so the plan can’t be changed.

• How to calculate premium: The premium amount is added to the loan amount to figure out the interest on the home loan insurance. When it comes to term insurance, the only thing that is used to figure out the interest is the amount of the premium.

Life Insurance for a Term

• The premiums are less
• the death benefit can help pay off debts and the home loan
• the coverage can be changed or increased based on your needs
• interest is only based on the premium amount

Home Loan Protection Plan:

• You’ll have to pay more for extra coverage;
• Your life insurance coverage will go down until it’s gone as you pay off the loan slowly;
• Plan can’t be changed because the premium is paid at the start.
• You can only pay the premium to one lender at the start of the plan.

All liabilities are covered by the term insurance policy, whereas the HLPP has a high premium, extra commission, and reduced coverage. It’s best to look at both plans’ pros and cons and choose the one that will cover the loan amount and any other unexpected costs that may come up in the future.

Disclaimer: The opinions shown above are mainly for informational reasons and are based on market research. Deal Acres is not responsible for any actions made as a result of relying on the provided material and makes no representations as to its accuracy, completeness, or reliability.