Fine Print of Home Loan Insurance: A Cover for Home Loan EMIs

Posted on: Nov 1, 2022 | 3 mins | Written by: HDFC ERGO Team

Fine Print of Home Loan Insurance: A Cover for Home Loan EMIs

Buying a home is probably one of the biggest purchases that you will do in a lifetime. In the long term, it offers financial security. However, unforeseen events can make it a bit challenging to own the house or continue with its ownership. This is where home loan insurance comes into the picture. Home loan insurance along with property insurance is the best safety that you can give your house and your loved ones. Here is all that you need to know about home loan insurance and why you must opt for one.

Workings of Home Loan Insurance

Insurance for a home loan is a risk mitigation plan. The prime motive of the plan is to ensure that the dependents of the borrower are not burdened with repayment of EMIs in their absence. In the unfortunate event of the death of the policyholder, the insurance company will take care of the EMIs.

They will pay out the remaining loan amount, making sure that the ownership of the house remains with your loved ones. The plan offers additional coverage apart from financial security due to the death or disability of the loan borrower. The additional coverage provides protection in the case of other emergencies such as damages due to fire or burglary.

You can choose to pay the premium of the home loan insurance at a single go or pay it in regular instalments. Also, the premiums that you pay are eligible for tax deductions under Section 80C and the death benefits of the policy are tax-free as well.

Reading the Policy Fine Prints

Just like a home insurance policy, the basic features of home loan insurance majorly remain the same. However, insurance providers might offer additional features and benefits, which can be a distinguishing factor. The policy can take care of any outstanding loan amount in the untimely death of the borrower, and it is a common offering across different insurers.

However, an insurance provider can offer coverage such as accidental death benefits, expenses related to the treatment of major diseases and so on. Before buying the policy, it is essential to go through its different offerings and coverages to better understand the plan.

Prior to the purchase of the plan, you must also check how the coverage of the policy will differ if there is a change in the interest rate of the loan. Given the current market scenario, the interest rates are only going up. A higher interest rate would translate to a higher repayment obligation for the borrower. Thus, it would make sense if the home loan insurance would cover the increase automatically to handle the change in repayment. Do not forget to look for this detail in the fine print of the policy.

Inclusions and Exclusions of the Policy

Just like a home insurance policy, the policy for a home loan also has inclusions and exclusions. Inclusions are essential for all the conditions where your policy will hold good and will have your back. On the other hand, exclusions are all the scenarios where you cannot claim the policy.

Depending on your insurance provider and the policy that you have opted for, the inclusion and exclusion list might differ. One must carry out due diligence to identify all the major inclusions and exclusions of the policy before buying.

One of the things that you can check before buying the policy, is whether it covers disability caused by mental disorders as a part of the policy or not. Pre-existing diseases such as injuries, disabilities, damages due to war, self-inflicted injuries, etc. are some of the common exclusions of home loan insurance policies.

Ensure that you do not end up buying a policy that has a long list of exclusions. Instead, look for an insurance provider that offers you a product with a long list of inclusions.

Important Considerations

There are a few important things that you must consider before buying the policy. To start things, a home loan insurance policy is entirely different from a home insurance policy. A home insurance policy is designed for different purposes and protects your house and its contents in the event of any unforeseen events. Thereby making it quite different from a home loan insurance policy.

Some of the insurance providers offer standard coverage for the policy and do not consider any sort of prepayment or even changes in the interest rates. This is something that you must check before buying the policy.

You can also explore some of the add-ons for the plan. Though it is not mandatory, you can look at add-ons such as partial disability cover, critical illness cover, loss of income cover, etc. These additional covers will make your policy even more robust.

5 Reasons to Buy Home Loan Insurance

If you are still on the edge about whether to buy a home loan insurance policy, here are some of the more prominent reasons why you should get one.

1. Protect Assets

The policy will come into effect in extreme cases such as the death of the loan borrower. In the absence of the policy, the onus of repaying the loan is on the family and if they fail to do so, the property or asset can be seized by the bank. The coverage of the policy will ensure that your asset remains with the family.

2. Protect Your Family

In the absence of the borrower, it can become quite difficult for the loved ones to take care of the loan and pay the EMIs. Apart from the loss of the bread earner, the family also must worry about loan repayment. Not if you opt for a home loan insurance plan.

3. Tax Benefits

The premiums that you pay towards the policy are tax deductible under Section 80C and the death benefits are non-taxable as well. Thus, offering better tax benefits.

4. Easy Premium Payments

You can either choose to pay the policy premium all at once or opt for instalments as well. You can add the premium amount to the loan and it will be considered a part of the EMIs. For example, if your loan amount is Rs. 30 lakhs and the policy premium is Rs. 1.5 lakhs, the total loan amount is Rs. 31.5 lakhs and the EMIs will be adjusted accordingly.

5. Buy With Home Loan

Unlike a lot of other insurance policies, you can choose to buy the loan protection policy while buying the home loan. Making it much easier to buy with minimal documentation, since the bank already has all the necessary documents.

Conclusion

A home loan protection policy is best bought along with property insurance for better effectiveness. A home insurance policy will ensure that the structure and contents such as appliances and furniture are covered. While the loan protection plan has your back if you are unable to pay the EMIs for the home loan. Neither is a replacement for the other and works best in conjunction.

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

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