Why Should You Insure Your Home Loan?
Ramesh Srivastava, a 35-year-old mechanical engineer, was really thrilled when his home loan got approved and his dream of buying a home turned in to a reality. Unfortunately, Srivastava met with an accident later and was bedridden for more than a year. As things unfolded, he failed to pay his equated monthly instalments (EMIs) and had to let go of his house eventually. A situation like this could have been avoided, had Srivastava gone for a home loan insurance.
What is home loan insurance?
Home loan insurance is a plan that covers your outstanding loan liabilities to hedge the risk of any loss in case you meet with any unforeseen accident during the repayment period. These policies offer a cover that reduces every year, as the loan amount comes down. In the event of the death of the borrower during the loan tenure, the insurance company will settle the outstanding loan with the bank. A home loan insurance could lapse upon the full repayment or the demise of the borrower or on transfer of the loan to another bank. Do note that it is not mandatory to avail of a protection plan to buy a home loan.
What are the benefits of a home loan insurance?
An insurance cover gives you a cushion during tough times to take care of the outstanding loan amount.
Unfortunate events: The home loan insurance is especially useful in case of the borrower's death, disability due to accident/ sickness or loss of job. The home insurance premium that you pay, ultimately reduces the burden on your family in case of any of these mishaps. In case of demise of the borrower, the insurance company settles the outstanding loan amount with the lender and the excess amount is paid to the beneficiary.
Tax benefits: Apart from the cover that they provide, home loan insurance policies also let you enjoy tax benefits. Since you are paying an insurance premium, you can get the tax deduction under Section 80C of the Income Tax Act. However, if your insurance premium is clubbed with your home loan EMIs, you will not get the tax benefits.
Getting an extra cover
It is not only the demise of the borrower that is covered under home loan insurance policies. You can also add various riders in your home loan insurance policy for extra cover. For instance, you could add critical illness, disability or loss of job under your insurance cover by paying an additional amount.
Term plan versus single-premium insurance plan
The single-premium home loan insurance cover might look attractive initially but on pre-payment, restructuring or transfer of your home loan, you would end up paying the excess premium amount which could be irrecoverable. Term-insurance plan, on the other hand, is a product that can provide you a cost-effective insurance against all your liabilities, including home loan.