1. Home
2. Blogs

Mortgage Insurance vs Home Insurance Explained

• 
• 
• 
• 0
• 0

Signing the registration papers and owning your home, is without any doubt one of the most aspirational goals that a lot of us have. With the sheer joy of owning a house, comes the responsibilities to take good care and safeguard it against most perils. And this is exactly where homeowner’s insurance and mortgage insurance come into the picture. Though both policies aim at safeguarding homeowners, they are different and are meant for different purposes. The chances are high that you will come across both these types of insurance while buying your house. Understanding them both will aid you in the decision-making process. Here is all that you need to know when it comes to home insurance vs mortgage insurance.

What is mortgage insurance?

Mortgage insurance is known as a safeguard for the lender and usually applies to homeowners, who opt for a down payment that is less than 20% of the value of the house. Mortgage protection insurance aims at protecting the lender, if the home buyer fails to repay the loan. A mortgage insurance plan does not protect the owner of the house or the house against any unforeseen circumstances. Rather, safeguards the lender.

For example, if a homeowner is unable to repay the loan and it goes into foreclosure, the mortgage insurance will help the lender to recover any losses that they might have made on the same. Lenders usually look at the LTV value or Loan-To-Value for mortgage insurance.

Is mortgage insurance required?

As a standard practice, you might be required to buy mortgage insurance, when you opt for a mortgage loan. Usually, lenders require homeowners to opt for mortgage insurance, if the down payment is less than 20%. The requirement can vary a bit depending on the lender and loan amount that you are looking for.

Depending on your loan amount and type, your lender might even forgo the purchase of mortgage insurance. Mortgage protection insurance helps lenders mitigate the risk of homeowners opting for lower down payments. It also ensures that they are protected for the entire loan duration, even if there is loan defaulting.

What is homeowners insurance, is it required?

Homeowners insurance is otherwise known as house insurance, home insurance or property insurance. The plan is aimed at protecting the house against potential hazards as far as the structure of the house or its contents is concerned. House owners opt for home insurance in India to safeguard their house and its contents against theft, natural calamities and any sort of accident.

A comprehensive plan for your house will offer protection against common perils such as floods, earthquakes, fire, theft, etc. These threats can destroy your home, burning of its contents or household items. Opting for home insurance will protect the house even against natural calamities. And if you live in an area that is prone to water logging or floods, it is imperative to opt for one.

A home insurance policy can also tend to third-party liabilities. For example, if someone is injured while they are on your property or you accidentally damage someone else’s property, the policy will safeguard your interests.

If you are a homeowner, it is almost always sensible to buy homeowner insurance. The policy ensures complete peace of mind knowing that the content as well as the structure is secure. In fact, it must be considered as an investment to safeguard the purchase of your home. Your home being one of the largest investments that you will ever make, the benefits will far outweigh the premiums.

Does your mortgage include homeowners insurance?

Your mortgage for a new house or property does not include homeowner’s insurance. Nor is it mandatory to opt for one. Even the RBI and IRDAI do not mandate any such regulations for a mortgage. The plan is sold separately to homeowners to secure their house from unforeseen circumstances. If you are planning to buy a house, there are a couple of ways in which you can opt for homeowner’s insurance.

You can either opt for a one-time payment for the policy and reap the benefits. Alternatively, you can opt to convert it into an EMI as well. This will ensure that by paying a very nominal amount you can secure your house. You can explore both options with your lender and choose the one that seems more sensible.

Should I Keep Homeowners Insurance After Paying Off My Mortgage?

There is no obligation on your part to continue with homeowners insurance after paying off your mortgage. However, continuing with the plan can be more beneficial than one might think. Even though your mortgage is now over, the house still exists and most likely is worth much more than when you bought it. It is only sensible to continue securing the house.

Home insurance in India can be quite affordable if you opt for it as an EMI with your mortgage. And continuing with the plan post the mortgage will ensure that you can lead a stress-free life in your abode. If you feel the premium is a bit high, you can always curb a bit on the coverage or increase the deductibles to reduce the premium.

Home insurance vs mortgage insurance

Here are a few primary differences between the policies which will help you decide better on the home insurance vs mortgage insurance confusion.

1. Coverage

A home insurance policy protects the house from potential threats and damages. Whereas, mortgage insurance is a safeguard policy for the lender, making sure they are secured even if a homeowner defaults.

2. Needs

A home insurance policy is not mandated but is ideally bought along with a mortgage to protect the house. Mortgage insurance usually applies when a homeowner opts for a downpayment that is less than 20% of the house amount.

Both policies can be bought as EMIs, reducing the burden on the homeowner.

Conclusion

Mortgage protection insurance and home insurance might seem a bit similar upfront, but they cater to entirely different needs. Depending on your needs, you can opt for either or both of the policies. And even on completion of your mortgage, it is advisable to continue with a home insurance policy, for sheer peace of mind.

FAQs

1. Is it mandatory to buy a home insurance policy?

No, neither the RBI nor the IRDAI mandates buying a home insurance policy. However, having a home insurance policy will ensure peace of mind during ownership.

2. Should I continue with home insurance on completion of the mortgage?

Though it is not mandatory, continuing with the coverage of a home insurance plan post-mortgage is beneficial in quite a few ways.

3. How should I pay the premiums of the policy?

Almost all the lenders will allow you to opt for either a one-time payment for a mortgage as well a home insurance policy. At the same time, you can even opt for equated monthly instalments for the same.

Disclaimer: The above information is for illustrative purposes only. For more details, please refer to the policy wordings and prospectus before concluding the sales.

RELATED ARTICLES

Difference between Home Insurance and Home Loan Insurance

Know the Difference Between Hazard Insurance and Home Insurance

Explaining the Difference Between Inclusions and Exclusions in Home Insurance Terms

Home insurance vs home warranty: A comprehensive comparative study

Home insurance policy - What is covered?

---

• 
• 
• 
•