Top 6 Reasons Why You Need Home Loan Insurance
Top 6 Reasons Why You Need Home Loan Insurance
![Need for Home Insurance Need for Home Insurance](/images/default-source/home-insurance/need-for-home-insurance.jpg)
A home loan is a long-term financial responsibility that a borrower is required to repay within the loan period. In case the borrower is unable to repay EMIs due to unforeseen circumstances such as death, accident, or job loss, home loan insurance comes into the picture. Simply put, home loan insurance or mortgage insurance covers the borrower and ensures home loan repayment. Note that it is different from home insurance, which protects your home against any unforeseen event. Home loan insurance makes sure that your loan is repaid even in your absence.
Is Home Loan Insurance Necessary?
It is a common practice nowadays that most financial institutions offer home loan insurance bundled with the home loan. It is important to note here that no insurance regulation has made it mandatory to purchase home loan insurance along with a home loan. However, it is in your interest only to purchase it so that you don’t have to worry about losing your investment and loan repayment in the event of a mishap. A home loan applicant must do due diligence before finalizing a home loan protection plan. It is not necessary that you buy it from your lender only. You have the freedom to choose any home loan insurance plan. You can compare plans and choose the one that best suits you.
Top 6 Reasons Why you need Home Loan Insurance
1. Protects Your Investment:
A home loan insurance hedges the investment against any unforeseen event, such as death, accident, or job loss of the borrower. It settles the loan despite unfavourable circumstances.
2. Easy Premium Payment:
Most home loan insurances are single premium policies, which means you have to pay the premium only once. Because of high premiums, lenders give the option of adding the premium to the loan amount. This way premium is deducted along with the EMI.
3. Tax Benefits:
Home loan insurance gives you tax benefits under section 80 C. Please note that if you are adding a premium to your loan amount and paying the premium through EMIs, you don’t get the tax benefit.
4. Single Policy for Joint Loan:
A single home loan insurance covers all the borrowers in a joint loan.
5. Additional Coverage:
Add-ons or riders can be added to a home loan insurance for additional coverage at an additional cost. The additional coverage strengthens the policy and covers against medical conditions, critical illness, disability, accidental death, or loss of job.
6. Protects Family:
In a misfortune, home loan insurance protects the family of the policyholder from the burden of the loan payment and the loss of investment.
Home loan insurance not only benefits the borrowers but is also important for lenders, as it protects them from bad debts. When you apply for a home loan, it is sanctioned against your home as collateral, and if the loan is not repaid, it becomes a bad debt. Lenders have to seize the property to recover dues. Home loan insurance ensures that a loan account doesn’t turn into bad debt and saves a lot of time and effort that goes into liquidating a property linked with a bad debt account.
Ways to Ensure Your Home Loan:
A borrower can insure a home loan in two ways:
1. Home Loan Insurance -
It is a protection plan that will pay the loan outstanding in case of an unforeseen event. It has a reducing coverage, which means, as the home loan amount is reduced every year, home loan insurance cover also comes down every year. If the borrower dies during the loan tenure, the loan amount is settled by the home loan insurance company. On the other hand, if the loan amount is paid, the insurance policy will lapse. Like any other insurance, there is a premium for home loan insurance as well. The premium depends upon the loan amount, tenure, age, and medical records of the borrower. This type of insurance can be purchased only if you have an existing home loan or are applying for a home loan.
2. Term Insurance -
It covers all your liabilities in case of a mishap because the sum assured is paid to the nominee who can use it as per requirement. In terms of insurance, coverage stays the same. The nominee receives the sum assured and settles the loan. It can be purchased at any time. In the case of an existing term plan, the borrower can top it up with an amount equal to the loan amount so that family expenses are not compromised.
Things To Remember Before Buying The Home Loan Insurance Policy:
● A borrower can purchase a home loan insurance either from a general insurance company or from a life insurance company.
● Policies offered by general insurance companies have to be renewed every year and have lower premiums.
● Policies from life insurance companies give coverage for a longer tenure at a higher premium.
● In case you transfer your home loan to another lender in the future, ensure that your home loan insurance is in line with the new lender’s policy or restructure it to avoid policy lapse.
● If home loan tenure is increased due to an increase in interest rates, the existing home loan insurance premium will not be enough to cover the loan amount.
● If a home loan is prepaid a certain part of the entire premium of home loan insurance is lost. To avoid this, consider a policy that is renewed annually rather than a single premium policy.
● Do not confuse home loan insurance with home insurance. The latter protects your home and its contents.
Conclusion
Buying a home is a huge and long-term investment and no one can predict what is going to happen in a period of 20 to 30 years. Therefore, it is a good idea to be prepared for an uncertain future. It may not be mandatory as per regulations, but you should protect your investment and family by availing of home loan insurance. You can easily avail a plan from your lending bank along with the home loan, or you can explore the market to find the best plan for you. Also protect your home and its contents against any calamity, such as fire, theft, etc. by investing in home insurance.
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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