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Insure Your Home Loan with a Home Loan Insurance

Insurance is so popular outside India that an insurer in the UK sold almost 30,000 insurance policies for alien abduction. People are ready to pay close to $150 a month as a premium for a total coverage of $1.5 million for something so bizarre. The insurance trend in India hasn’t picked up so much and isn’t as unusual as other countries. There’s still a lot that India has to pick up from the west and insurance is one of them. Insurance can be used to avoid many uncertainties.

Taking loans and being unable to pay them is very common. Home loan is one loan that usually prolongs for a decade and a half or even more. The loan can be defaulted due to many uncertainties like loss of job or death of the prime earning member of the family. So taking a home loan insurance becomes important. It is not a compulsion but it is always better to be safe.

A home loan insurance is a scheme where the insurance company will settle the outstanding loan amount with the lender in case of uncertain situations. The premium paid towards home loan insurance is qualified for tax benefits.

Home loan insurance benefits both the lender and borrower. The lender’s payment is secured as in case of any default the insurer will pay the outstanding amount. In case of any crisis, the borrower and his dependents will not be homeless as the payment is taken care of by the insurer.

There are two ways one can insure a home loan, term insurance, and home loan insurance. Term insurance takes care of all the liabilities and debts. The sum assured stays the same throughout the tenure of the loan. In case of a situation where the home loan cannot be paid the nominee will receive the sum assured, who will then pay it to the lender. The premium paid here qualifies for tax deduction under 80C.

Home loan insurance only takes care of the outstanding loan amount when the borrower is unable to pay it off. The size of the coverage keeps going down as the outstanding home loan amount reduces. The loan settlement is done directly by the insurer and the nominee is nowhere in the picture. If the lender himself sells the insurance and the premium amount is included in EMI’s then it doesn’t qualify for tax benefits under 80C.

It is advised to take home loan insurance for a longer term and the loan tenure must match with the insurance coverage period. Taking a shorter term insurance and later renewing it can be costly.

Home loan insurances are usually single premium plans. The premiums are usually added to the loan amount and then the EMIs are calculated. Once the loan tenure ends or the loan is cleared the policy ceases to exist. Also, these insurances come with riders or add-ons like terminal illness, accidental death, uncertainties at job and disability. These riders enhance cover benefits but at an additional cost.

It is suggested to go for term insurances rather than home loan insurance if once can pay regular premiums. If one cannot pay regular premiums due to uncertainties in income then they can opt for home loan insurance. One drawback of the banks selling the insurance is that even in the case when a home loan insurance is not needed, they are sold as matter of procedure. It’s better if one works out the details of home loan and insurance with the lender and insurer.

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