Home Loan Insurance

In case of unforeseen situations, there may come a time when you may find it difficult to repay your loans. Loan insurance is a great way to ensure that you do not miss out on repaying your loan even if there is a financial crunch.

Home loan insurance is one such policy that saves you from defaulting on your home loan repayment. These plans have become popular for many reasons, the main among them being the protection they offer. 

To learn more about housing loan insurance, its features, benefits, reasons to buy, and more, read on.

Home loan insurance or a home loan protection plan (HLPP) protects buyers in unfortunate or unforeseen situations where they fail to repay their loan. 

For instance, if a person avails of a home loan with a tenure of 15 years but is unable to repay it after 10 years. This could be due to loss of a job due to a disability that resulted from an accident. 

In such a case, the insurer will repay the outstanding balance of the loan if that person has opted for a housing loan insurance plan. However, it is crucial to note that insurance is only available if you pay the premium. 

As mentioned above, home loan insurance plans secure your liabilities as a home loan borrower. However, in the current economic situation, there are many reasons why you may not be able to repay the loan. 

Generally, when you default on a home loan, the lender can seize your home and try to recover the outstanding amount from your family. In any case, it can jeopardise you and your family’s future.

However, you can avoid this by choosing home loan protection insurance. You can even avail add-on features that make your insurance more comprehensive. As such, it becomes essential to invest in such a plan.

If you decide to opt for housing loan insurance, the following are the benefits that you can enjoy:

1. Home Loan Repayment for Borrowers with Critical Illness

If you are unable to repay the loan due to critical illness or disability, the insurer takes care of your loan repayment.

2. Protects Family Members

Say the borrower is the sole earning member of the family and meets an untimely demise. In this case it becomes impossible for the surviving family members to repay the loan. 

In such situations, mortgage insurance comes handy as family members can claim the protection amount to pay off the loan. 

3. Tax Benefits

You can also avail of tax deductions on the amount you pay as the premium for your home loan insurance plan under Section 80C.

4. Easy Premium Payment Options

If you are unable to pay the premium, many policies allow their holders to adjust their premium payment with their Equated Monthly Instalment (EMI).

Listed below are three types of home loan insurance policies you can choose from:

1. Level Cover Plan

This is a basic insurance plan wherein the coverage stays constant throughout the tenure. Given this, the premium amount remains unchanged unless you buy add-on covers.

2. Hybrid Cover Plan

Here, the cover amount will stay the same as your home loan amount in the first year. Post that, it will reduce with your outstanding home loan amount. 

As a result, the premium amount may also reduce. Since the coverage stays the same initially and then decreases, it is known as a hybrid cover plan.

3. Reducing Cover Plan

In this home loan protection plan, the coverage changes throughout your tenure. The reduction is aligned with your home loan amount. Hence, as your outstanding loan amount reduces, the cover also decreases. 

Remember that the premium you need to pay will also reduce with your home loan amount. It is important to note that the coverage in this plan type is never the same and decreases from the start, unlike the two other insurance plans.

Although home insurance and home loan insurance may sound the same, there are numerous differences you need to know. Here is a significant difference between these two insurance policies.

• Home Loan Insurance: You can avail home loan insurance plans if you have an existing loan or plan to get a home loan. This plan guarantees the lender will receive the outstanding home loan amount if something unfortunate happens to you.

• Home Insurance: Home insurance, also known as homeowner’s insurance, is a plan you can buy whenever you want. It offers protection against incidents, such as accidental fires, explosions, lightning, and burglary, among others.

No, buying a home loan insurance policy is voluntary and not mandatory. However, since the policy offers many benefits to keep your home and your family secure, you may opt for it.

• Compare different home loan insurance plans before finalising to ensure that the plan suits your needs

• You can avail the plan from a general or a life insurance company

• If you purchase from a general insurer, the premium amount may be low, and the renewal will take place annually

• Choose add-on covers to ensure the coverage is comprehensive and the premium is manageable

• If you pay the premium in EMIs with your home loan EMIs, you may not get the tax benefits 

• You can purchase the policy by visiting the policy provider’s office or online