home loan insurance Archives -

Term Insurance or Home Loan Insurance – What to buy?

Fri, 06 May 2022 06:54:17 +0000

The Buyt Desk

Owning a house is an aspiration for many. It’s a big dram with a big budget. You need a huge amount to purchase a house and thus home loans make this dream achievable. People take a home loan for a tenure of 15-20 years and repay back the loans through equated monthly instalments (EMI). But what if the loan borrower is not able to repay the loan or meets with an unfortunate incident of death or accident? It can cause severe financial stress to the family. That’s why it is important to have a protection plan for your loan. You could either buy a separate home loan insurance or have a large enough life insurance cover that could serve as a risk cover for your loan.

What are Home Loan Insurance and its benefits?

A home loan insurance plan provides the borrower coverage for the risk of loan repayment during the tenure of the loan. In case the borrower (insured) loses his /her job or becomes disabled due to an accident or sudden death, the home loan is repaid by the insurer. This act will help both the lender and borrower along with the dependents of the borrower. When the lender offers the home loan insurance, it will be a single premium plan and it will be added to the home loan and hence the EMI increases. Sometimes you may even have to pay a separate premium during the loan approval process.

By buying an insurance plan, the house owner will save the surviving family members from the responsibility of repaying the loans if the borrower dies during the loan tenure. Also, the lender will be saved from bad debts as the insurance company will pay off the loan for the borrower. Opting for a mortgage loan works in favour of the borrower as the lender feels safe to approve the loan as the chances of loan default are zero.

Home loan insurance vs. Term insurance

Cost/Premium

The premiums of home loan insurance plans are considerably higher compared to term insurance. The home loan protection plan requires fees to be paid upfront while it is distributed over the tenure in term insurance. Usually, the home loan protection plan premium is part of home loan EMI if you buy it with a lender.

Tax Benefits

Whether it is the premium of a term insurance plan or a home protection plan both can give a tax deduction under section 80C of the Income Tax Act 1961.

Cover

Home loan insurance only covers outstanding loan amount unlike term insurance which covers all liabilities of the insured including dependents and home loans.

Coverage period

The house loan protection plan covers the insured only till the home loan is completely repaid and also the coverage keeps on decreasing as and when repayment is done. While the term insurance provides coverage till the insurance term ends irrespective of the home loan and the coverage remains the same till the end.

Flexibility

When you refinance or alter the term of the home loan, the home loan insurance’s tenure cannot be changed. Also, it cannot be transferred when you change lenders. It is fixed insurance which cannot be changed as per needs and covers only home loans to be repaid. But the term insurance plans are flexible, you can anytime extend the sum assured to cover your extended home loan and covers all insured’s liabilities and debts including the home loan.

Rider Plans

Term insurance can be enhanced with add-ons for more coverage. There are rider plans to cover critical illness, accidental deaths, disabilities, unemployment and many more. Home loan insurance also has a few riders which cover terminal illness, accidental death, EMI waiver in case of job loss of up to three to six months and disability. But the cost of rider plans in home loan insurance plans is very high compared to the same in term insurance.

Summing up

The sum assured remains constant for a term life insurance and the same is paid to the nominee in case of death of the insured. In the home loan protection plan, the sum assured keeps decreasing and is equivalent to the outstanding loan. If buying insurance exclusively for a home loan then a home loan protection plan is more affordable because of decreasing sum assured. But if you already have sufficient term insurance coverage that is enough to cover your home loan too, you need not buy another insurance to cover your home loan. Always remember that your term insurance plans’ assured amount should be at least 10 times your current annual income.

When your term insurance is enough to cover only your current liabilities and debts, you will need new home loan insurance. As the insurance has tax benefits, it is safer to buy new insurance to safeguard your dependents against a major financial liability. Consider all the above points and make a wise decision about buying new insurance as per your financial conditions and requirements. Don’t buy a plan just because your lender asked you to when you have adequate term insurance coverage.

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How Home Loan Insurance Protects Your Home & Your Family?

Wed, 02 Mar 2022 08:22:23 +0000

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.

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