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Do I need to take Home Loan Protection Insurance? What are the benefits of taking one?

Having a home that one can call his own is a cherished dream that everyone has. Most Indians spend a lifetime of savings in paying the down payment of their residences and spend a chunk of their salaries in repaying a home loan for a better part of their youth. Real estate is indeed the most cherished and costliest asset one can have, but have you ever thought of the possibility of what will happen if you are not there to make repayments on your home?

God forbid, if something happens to you the entire debt burden will fall upon your family! To avert such a situation, it is wise to buy a home loan insurance just like you must have taken a life insurance policy to keep your family protected. Let’s delve into more details about what goes into a home loan insurance.

What is a home loan insurance cover?

This is an insurance plan that covers the outstanding liability on your loan. In case of the death of the borrower, the proceeds of this cover help his family meet his repayment commitments. Home loan lenders have teamed up with several insurance players who provide such products. As a borrower, a premium will be decided for you based on your age, loan amount and tenure of the loan. You have the choice either to pay it as a lump sum or club it with your EMI payments.

Despite the fact that home loan insurance works in comparable manner as term protection plan, it just covers to the extent of the outstanding amount and tenure of the home loan.

Benefits of a home loan insurance

  • Peace of mind- You will have peace of mind thinking that your family will remain safe and your debt will still be taken care of in your absence.
  • Tax benefits- When you opt for such a plan you become entitled to a tax deduction under section 80 C of the Income Tax Act for premium payments on HLPP (Home Loan Protection Plan). You will get this tax benefit irrespective of whether you choose to make payments as a lump sum or choose to club it with your EMI.

Cons of home loan insurance

Most people choose a single premium payment on their home loan insurance because it turns out to be cheaper than bundling it with the EMI. This may be a disadvantage in the following situations.

  • If you choose to foreclose your loan with some windfall gains you may have made, you will end up paying a hefty premium for a short period of time.
  • In case you want to transfer your balance outstanding loan to another lender, transferring your home loan policy will be an arduous task.
  • All home loan lenders have tie ups with certain insurance companies whose cover they might be trying to push. As a borrower, you should remember that you are under no such compulsion.
  • They may be trying to push an endowment product which will not be suitable for you and prove to be costly and ineffective in the long run.

While a home loan insurance makes sense to protect your family, you should be aware of the disadvantages it poses in terms of escalating your overall costs. You may consider taking a simple term plan instead, which provides you, an insurance cover that is cost effective against all your existing liabilities including your home loan.