Have you heard about home loan insurance or mortgage insurance? It’s becoming more common because property prices are increasing. We never know what’s going to happen in life, so a lot of people are using home loan insurance to secure their future and their loved ones.
So, what is it exactly?
A home loan is a big financial commitment that you have to repay over time. If anything unexpected happens, like death, injury, or job loss, home loan insurance can help. It basically covers you and makes sure your home loan is paid off, even if you’re not around. Keep in mind, it’s not the same as home insurance which protects your property. Home loan insurance is specifically designed to pay off your loan if you can’t.
What is home loan insurance?
Home loan insurance is a type of insurance plan that covers your home loan. It is meant to protect you in case of unexpected events such as natural disasters, man-made incidents like burglaries, or other unforeseen circumstances. If something like this happens, the insurance company will pay off the remaining balance of your home loan to the bank.
When you take out a home loan to buy a property, it’s important to also consider getting home insurance to protect your investment. Owning a home is a big accomplishment and you want to make sure it is protected. Decorating it to make it your own takes time and effort, so you want to make sure that it’s protected from any damage.
The premium you pay for home loan insurance is tax-deductible, making it a smart financial decision. By getting home insurance along with your home loan, you can avoid any potential financial losses in the future
Why is home loan insurance necessary for borrowers?
Home loan insurance is a type of protection plan for borrowers who have taken out a home loan. It acts as a safeguard for the outstanding loan amount in case the borrower is unable to repay the debt due to unforeseen circumstances such as job loss or death.
This insurance policy offers peace of mind to the borrower, as it ensures that their dependents will not be left without a home in the event of an unfortunate situation. Borrowers have the option to choose between a standard plan or one that includes additional features and enhanced coverage.
In conclusion, home loan insurance is a crucial aspect for borrowers as it protects their loved ones from financial distress and potential homelessness in the case of unexpected events.
Here are some of the reasons Why home loan insurance is necessary for the borrower?
- Secures Your Investment: Home loan insurance protects your investment from any unexpected events, such as death, accident, or job loss of the borrower, by settling the loan in unfavorable circumstances.
Streamlined Premium Payment: Most home loan insurances are single-premium policies, requiring only one payment for the premium. Lenders often offer the option of including the premium in the loan amount to make the payment process more manageable.
Most home loan insurances are single-premium policies, requiring only one payment for the premium. Lenders often offer the option of including the premium in the loan amount to make the payment process more manageable.Home loan insurance offers tax benefits under Section 80 C. It’s important to note that if the premium is added to the loan amount and paid through EMIs, the tax benefit is not available.
Joint Loan Coverage:One home loan insurance policy covers all borrowers in a joint loan.
Supplemental Coverage: Additional coverage, such as medical conditions, critical illness, disability, accidental death, or job loss, can be added to a home loan insurance policy through add-ons or riders for an additional cost.
Family Protection: In case of misfortune, home loan insurance protects the policyholder’s family from the burden of loan payments and loss of investmentHome loan insurance not only benefits borrowers but also lenders by protecting them from bad debts. When a home loan is approved, it is sanctioned against the borrower’s home as collateral. If the loan is not repaid, it becomes a bad debt, and lenders must seize the property to recover the funds.
Home loan insurance ensures that the loan does not turn into a bad debt, saving time and effort in liquidating a property linked with a bad debt account.
What are the important factors to consider when choosing a home loan insurance plan?
Home Loan Insurance Options and Considerations
A home loan insurance is an insurance policy that covers the outstanding balance of your home loan in case you are unable to make payments. There are two main types of home loan insurance: term insurance and separate home insurance.
Term Insurance: Term insurance is a type of insurance that provides financial protection in the event of the policyholder’s death. The coverage amount, also known as the sum assured, is paid to the designated nominee to use as needed. This type of insurance does not change over time and can be purchased at any point. Additionally, for those with an existing term plan, it is possible to increase the coverage amount by an equal amount to the outstanding loan, ensuring that the policyholder’s family is not burdened with additional expenses.
Separate Home loan Insurance: This insurance covers only the outstanding balance of your home loan and typically has a reduced coverage. The coverage amount decreases as you repay the loan. In contrast, the coverage stays the same with term insurance. If you have a term insurance policy, the sum insured can be paid to the nominee who can use it to settle the loan. In the case of a home loan insurance policy, the insurer directly pays the lender to settle the loan.
Where to Purchase Home Loan Insurance: Home loan insurance can be obtained from either a general insurance company or a life insurance company. The policies offered by general insurance companies must be renewed annually, while those offered by life insurance companies have longer terms.
Riders and Add-On Covers: Before purchasing a home loan insurance policy, make sure to ask about the riders and add-on covers. It is beneficial to get a plan that covers not only death but also unemployment and disability. Additionally, ensure that the policy covers both natural and accidental death.
Loan Tenure and Insurance Cover Period: It is important that the loan tenure and insurance cover period match. Avoid choosing a shorter cover period with the intention of extending it later, as there is a high chance you may forget to do so. Furthermore, as you get older, it becomes more difficult and expensive to secure good coverage.
Choosing the Right Home Loan Insurance: When considering purchasing a home loan insurance policy, make sure it meets all of your requirements. Compare various products in the market and select the one that is best for you. Before bundling your EMI payments with premium payments, organize your expenses.
What Are the Key Features of Home Loan Protection Plans?
Overview of Home Loan Protection Plans:
- Premium Payment: Home loan protection plans are typically single premium policies, which means that you make a one-time payment for the premium. The premium amount can be substantial, so lenders often add it to the loan amount and include it in the monthly installments. For instance, if you take out a loan of Rs.25 lakh and the associated home loan protection plan has a cost of Rs.1.2 lakh, your monthly installments will be based on a total loan amount of Rs.26.2 lakh.
- Life Coverage: Most home loan protection plans provide life coverage equal to the outstanding home loan amount. Once the loan is fully paid off, the coverage ends.
- Optional Riders: Some insurance providers offering home loan insurance schemes offer optional riders to enhance their coverage benefits. Some of the riders that can be added to a home loan protection plan include:
– Terminal Illness
– Accidental Death
– Job Loss for three to six months of EMI payments
– Disability
Please note that adding these riders to a policy increases its cost compared to regular home loan insurance plans.
What Are the Advantages of Home Loan Protection Plans?
- Loan Repayment in case of Death: In the event of the borrower’s untimely death, the insurance company will repay the outstanding loan amount to the lender or bank.
- Tax Benefits: Home loan protection plans offer tax benefits under Section 80C of the Income Tax Act.
- Optional Riders: Borrowers have the option to add riders, such as disability or critical illness, to their home insurance plan for additional coverage in the event of disability or critical illness
What distinguishes Home Loan Insurance from other types of Insurance policies?
Home loan insurance is only available during the time a housing loan is active or being applied for and its coverage only pertains to the remaining loan amount. It is also a decreasing coverage, in contrast to other insurance policies which can be purchased anytime and provide ongoing protection. Additionally, home loan insurance coverage terminates upon loan repayment completion, unlike regular insurance plans.
Is Home Loan Insurance Required by Law?
No, obtaining home loan insurance is not a legal requirement. The decision to purchase such insurance is entirely optional and up to the borrower’s discretion. However, it is often recommended as a way to secure one’s financial future.
What should one consider before purchasing a Home Loan Insurance Policy?
- Before buying home loan insurance, it’s important to know that the policy can be purchased either from a general insurance company or a life insurance company.
- Policies provided by general insurance companies renew annually and come with lower premiums. On the other hand, life insurance policies offer coverage for a longer period, but with a higher premium.
- If you plan on transferring your home loan to another lender in the future, make sure your home loan insurance aligns with the new lender’s policy or restructure it to prevent policy lapse.
- If the loan tenure is extended due to a rise in interest rates, the existing home loan insurance premium may not be sufficient to cover the entire loan amount.
- If the home loan is prepaid, a portion of the total home loan insurance premium is lost. To avoid this, consider an annual renewal policy rather than a single premium policy.
- Finally, it’s important not to confuse home loan insurance with home insurance. The latter protects your home and its contents, whereas home loan insurance protects you from loan-related risks.
What is the Distinction Between Home Loan Insurance and Home Insurance?
It’s important to note that home loan insurance and home insurance are not the same. Although the terms are often used interchangeably, they serve different purposes.
Home Insurance: A home insurance policy, also known as homeowner’s insurance, provides coverage for the structure of your home and its contents against perils such as fire, explosion, lightning, theft, and burglary.
Home Loan Insurance: On the other hand, home loan insurance, also known as home loan protection insurance, is designed to pay off your outstanding home loan balance in the event of death, disability, or critical illness, ensuring that your family is not burdened with debt repayment in your absence.
Why Home Loan Insurance is a Wise Investment?
In conclusion, owning a home is a major and long-term investment that involves considerable financial commitment. Given the unpredictability of the future, it’s advisable to take measures to protect your investment and loved ones. Although not legally required, obtaining home loan insurance provides peace of mind and security against loan-related risks. Borrowers can purchase a home loan insurance plan from their lending bank or compare and select the best option from the market.
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