The Buyt Desk
Buying a home is a good investment. Protect your home loan so that your family will not suffer if anything happens to you before the complete repayment of your home loan.
Many dreams of owning their own home. To fulfil this dream, one needs to invest a good chunk of money which can be calculated as 10 years of earning. Mostly all take loans to buy or build a new house. Your house is your long term investment plan. Only once the loan is repaid the house is yours, till then it belongs to the lender be it a bank or private financer. This loan is an obligation for a long time till complete repayment happens.
Before repayment, unfortunately, if something happens to you, your family should still have the house and should not be thrown away because they couldn’t pay EMI. As the house is mortgaged with the lender, they have all rights to acquire the property if the borrower fails to repay the loan. Now that the real estate prices are at a peak, it is better that the buyer also plan to protect their home loan. There are many schemes to protect home loans and each has its own advantages and drawbacks. Some club it with existing term insurance. Some buy new term insurance for this. And few go for home loan insurance plans. Basically, all the insurances that cover the home loan amount. This insurance protects the family of the buyer if the buyer expires before completely repaying the loan. The insurance can be claimed by the nominee and the same can be used to repay the outstanding loan amount. This insurance is valid till the term of loan repayment.
What is Home Loan Insurance?
A plan, where the insurer will settle the home loan with the loan lender when the borrower is no more, is called a home loan insurance plan. Different home loan insurances offer different cover along with loan cover like cover for contents of house, cover for the buyer. Also, these insurances offer tax benefits on the premium paid.
How Does Home Loan Insurance Help Lenders?
Lenders always want their money back with interest. No loan provider is doing charity and all are here to make profits. They do not want their loans to be declared as bad debts in their books. So they always ask the borrower to buy the insurance to cover the home loan. Even if the borrower fails to pay or his/her family fails to pay in case of the death of the borrower, the insurance will cover it for them.
How Will Home Loan Insurance Help borrowers?
As the home loan insurance covers the repayment of the loan amount when the borrower fails to repay the home loans due to his/her earning instability or his/her demise. When the loan amount is paid timely, the house will not have defaulted and the ownership remains with the house owner or his/her nominee. There are many added features to home loan insurance. You can opt for basic or go for add-ons to enhance the coverage based on your needs. It is essential for the borrower to buy loan insurance so that he/she/ their family are not homeless if they are unable to repay the amount.
Attributes of the Home Loan Protection Plans
Life cover – These insurances provide life cover which is the same or more than the home loan outstanding amount. This cover is valid only till the day of complete repayment of the loan.
Payment of premium – Usually the home loan protection policies are single premium plans. But the premiums are very high as the loan amount is also high. Loan providers usually add this premium amount to the loan itself, and the lender buys it for the borrower. And the borrower repays this premium amount along with EMI.
Riders or Add-ons – Most of the insurance companies along with home loan cover also offer rider plans to increase their cover benefits. Few such add on plans are for terminal illness, disability, accidental death, jobless up to six months of EMI payments and many more. But these rider plans will make the premium costly. You can buy the add-ons as per your needs and budget. Critical illness rider and disability rider package will provide coverage in case of critical illness or disability of the borrower and not only on unfortunate demise of borrower.
Is a home loan insurance policy required when taking a home loan?
No, it is not mandatory to buy while borrowing a loan. Buying or not is left to the borrower. If needed, he/she can buy or totally skip it. Also it can be brought at any stage of loan repayment. The older the borrower is, the higher is the premium. So it is advisable to buy insurance at the time of taking a loan.
Summing up
The home loan protection insurance company will repay the remaining home loan amount to the lender in case of demise of the borrower. The insurance holder can avail the tax benefit on the premium paid under Section 80C of the Income Tax Act. The buyer can opt for riders or add-on packages to increase the coverage of the insurance.
