The importance of insurance in today’s day and age is profound, especially for debt holders. As you know, life is unpredictable. While borrowing money from hard money lenders is typical, it’s better to consider other options.
For a big-ticket loan such as a home loan, the liability risk is usually high and can last for up to 30 years. In case an unfortunate incident occurs during the loan tenure, leading to non-payment of the outstanding amount, then home loan insurance can cover for it.
What Is a Home Loan insurance?
Home loan insurance or Home Loan Protection Plan (HLPP) is similar to term insurance in which an insurer can settle the outstanding home loan amount with the lender, in case of unprecedented situations including the demise of a borrower. An insurer can claim the insurance cover until the outstanding principal amount is completely repaid.
A premium is paid towards the home loan insurance policy, based on the following factors –
- Loan amount borrowed – a larger outstanding loan amount means a larger premium
- Applicant’s age – older the applicant, higher the premium payout
- Loan tenure – longer the tenure, higher the premium
- Medical status of the insurer/borrower – better health equals lower premium
Moreover, the premium paid towards any home loan insurance is eligible for tax benefits. An insurer can claim tax deductions for a maximum amount of up to Rs 1.5 lakhs on the premium paid under Section 80C of the ITA.
Home Loan vs. Home Loan Insurance
Simply put – a home loan is a sum of money borrowed to finance a house while home loan insurance is a premium policy taken to insure the home loan amount borrowed. Besides, loan plans come with a comprehensive insurance policy wherein the insurance premium is added to the EMI amounts and paid monthly.
To check the premium amount, you can use a home loan EMI calculator online and estimate the EMI amount based on your tenure and home loan interest rate.
Why Take Home Loan Insurance?
Taking home loan insurance is not mandatory when choosing a home loan online or offline. However, such a policy can secure your property against unforeseen or unfortunate circumstances. Under the policy, an outstanding loan balance is settled with the lenders in case the borrower dies before the home loan is repaid.
Besides, you can secure several benefits by taking home loan insurance, such as –
- Generally, lenders favour applicants who apply for home loan with an integrated home loan insurance or have a separate insurance policy to cover the loan amount
- In case of emergencies, your insurance policy will cover for the non-payment of the loan amount
- A single insurance policy can cover for all the co-borrowers of a home loan
- You can club optional rider plans like critical illness, unemployment, etc. to improve the cover benefits of your insurance policy
Overall, home loan insurance is beneficial for both the borrower and the lender. It can mitigate the lending risk significantly, to avoid bad debts.
As you can see, taking home loan insurance has various advantages for the borrowers. But, before you apply for home loan insurance, make sure to review the terms and conditions applicable to the policy and make an informed decision.