Due to the rising costs of real estate, home loan insurance has gained tremendous popularity in the modern world. Most people use house loan insurance to protect their future and the future of their loved ones because life’s events are unpredictable. We must understand what home loan insurance is in order to understand how it helps us.
What is home loan insurance?
In a house loan insurance plan, the insurer agrees to pay the lender or bank the balance of the home loan in the event of an unforeseen circumstance. The applicant, the home, and all of its belongings are all covered by a few of the comprehensive home loan insurance plans. There are tax advantages for the premium paid for mortgage insurance.
Why do lenders need home loan insurance?
Lenders dislike it when borrowers default on their loans. Of course, they would want to keep their cash safe. Lenders require home loan insurance to prevent a mortgage from becoming a very bad debt. The lender would lose out financially in the event of the borrower’s passing, especially if they were the only earners in the family.
Importance of home loan insurance for borrowers
As is already known, in the event that a borrower defaults on a loan, a home loan insurance plan will pay the remaining balance. A situation like this could develop if the borrower loses their employment or passes away. You have the option of selecting a standard plan or one that offers extra features and riders for more comprehensive coverage. Home loan insurance is crucial for borrowers since it assures that their dependents won’t become homeless while they are away or in an emergency.
Features of home loan insurance
- The majority of home loan protection programmes just require one premium to be paid. This implies that you will only need to pay the charge once. Lenders frequently add the premium amount to the loan amount because the premium amount is quite high. The premium and the corresponding monthly instalments are paid by the borrower. For instance, if you take out a loan for Rs. 30 lakh and choose home loan protection that costs Rs. 1.5 lakh, you will be required to pay EMIs based on Rs. 31.5 lakh.
- The majority of home loan protection policies provide life insurance with a death benefit equal to the balance of the outstanding loans. The cover expires after the loan amount has been paid in full.
- Add-ons or Riders – There are a number of insurance companies that offer optional rider policies to improve their cover advantages. The following is a list of the riders available with home loan protection plans:
– Deathly illness
– Unintentional death
– Jobless EMI payments for a maximum of three to six months.
– Disability
Things to be considered before going for a home loan insurance
- Term insurance is something you buy to cover all of your obligations and bills.
- Separate home insurance is if you are unable to pay off your home loan, this insurance plan solely covers the outstanding balance.
The majority of home loan insurance plans have diminishing coverage. The size of the coverage is dependent on the balance of the mortgage. As a result, when a borrower pays back the loan’s principal, the insured amount decreases. The coverage does not change in the case of term insurance, though. In the event of term plans, the nominee receives the sum assured and is then able to pay the lender or bank to settle the debt. If there is a home loan insurance plan, the insurer pays the lender immediately for the balance of the home loan to settle the loan.
Both general insurance companies and life insurance companies offer home loan insurance. There is an annual renewal requirement for the general insurance firms’ policies. Longer terms are available with the policies that life insurance companies offer.
You must absolutely inquire about the riders and add-on covers. Getting a plan that includes death and other eventualities like unemployment and disability is advantageous. Also, verify whether the policy only covers natural death or also includes accidental death.
What is this home loan insurance process?
The insurance for home loans is comparable to term insurance. You are protected by this insurance up until the time when you must repay the debt. The insurance period ends when the remaining loan balance is repaid. However, the family can use the loan insurance to pay off the outstanding balance of the home loan if the person making the loan payments passes away during the loan term. This prevents the bank from seizing the house or the other assets used as collateral.
Benefits of home loan insurance
- In the unfortunate event that the borrower passes away, the insurance pays back the remaining loan balance to the lender or the bank.
- Section 80C of the Income Tax Act allows for the use of tax benefits.
- The borrower may choose additional riders or coverages to supplement your house insurance policy. A disability or critical illness rider makes sure that the outstanding loan balance is covered not just in the event of the borrower’s untimely death but also while they are disabled or ill.
How different are home loan insurance plans from other insurance plans?
Regular insurance policies are always available to purchase. The home loan protection programmes, however, cannot be purchased at any time. It can only be bought if you already have a mortgage or are applying for one. In addition, home loan insurance plans are decreasing their coverages, which formerly exclusively covered the outstanding loan balance. Unlike other conventional insurance policies, the coverage is only offered until the loan’s term is over.
Why are home loan protection plans beneficial?
- In the unfortunate event that the borrower passes away, the insurance pays back the remaining loan balance to the lender or the bank.
- Section 80C of the Income Tax Act allows for the use of tax benefits.
- The borrower may choose additional riders or coverages to supplement your house insurance policy. A disability or critical illness rider makes sure that the outstanding loan balance is covered not just in the event of the borrower’s untimely death but also while they are disabled or ill.
Difference between home loan insurance and home insurance
Home loan insurance and home insurance are totally unrelated. However, because of how similar they sound, the two names are frequently mistaken.
Plans for home insurance:
Homeowner’s insurance, commonly referred to as home insurance, provides protection for your home and its belongings from a variety of risks, including fire, explosion, and lightning. It also provides a defence against theft and break-ins.
Plans for home loan insurance:
In the event that you are unable to repay the loan due to death, disability, or a serious illness, the home loan insurance plans or home loan protection plans forgive your mortgage obligation.
Reasons why a home loan is needed
Keeps Your Investment Safe
An insurance policy for a mortgage protects the investment from unanticipated occurrences like the borrower’s death, an accident, or the loss of their job. Despite the challenging circumstances, it repays the loan.
Easily Paying Premiums
The majority of house loan insurance policies only require one premium payment, making them single premium policies. Due to high premiums, lenders offer the choice of increasing the loan amount to include the premium. In this manner, the premium and EMI are both subtracted.
Tax Advantages
Under section 80 C, home loan insurance offers you tax advantages. Please be aware that you do not receive the tax benefit if you add a premium to your loan amount and pay the premium through EMIs.
Additional Coverage
For an additional fee, an add-on or rider can be added to a home loan insurance policy to provide additional coverage. The added protection fortifies the policy and protects against conditions such as critical illness, disability, accidental death, and job loss.
Protects Family
In the event of a catastrophe, house loan insurance shields the policyholder’s family from the financial strain of loan payments and investment losses.
Things to know before taking a home insurance plan
- A borrower has the option of purchasing a house loan insurance from a life insurance business or a general insurance provider.
- General insurance company policies have cheaper premiums and must be renewed annually.
- Life insurance policies offer coverage for a longer period of time for a greater cost.
- If you ever decide to switch lenders for your mortgage, make sure your home loan insurance is compliant with the new lender’s guidelines or restructure it to prevent a policy lapse.
- The current home loan insurance premium will not be sufficient to cover the loan amount if the term of a mortgage is extended as a result of an increase in interest rates.
FAQs
Is it necessary to get home loan insurance?
It's not required to buy a home loan protection plan. Whether you decide to purchase it or not is entirely up to you. However, it is only advised that you get a house loan insurance plan to safeguard your future.
How different are home loan insurance plans from other insurance plans?
Regular insurance policies are always available to purchase. The home loan protection programmes, however, cannot be purchased at any time. It can only be bought if you already have a mortgage or are applying for one. In addition, home loan insurance plans are decreasing their coverages, which formerly exclusively covered the outstanding loan balance. Unlike other conventional insurance policies, the coverage is only offered until the loan's term is over.