Home Loan Insurance
Borrowers should manage their finances wisely. However, lenders like banks, NBFCs, and housing finance companies do not require home loan insurance. Regulatory agencies such as the RBI and IRDAI state that purchasing a home insurance plan is optional when taking a home loan from any financial institution.
Meaning of Home Loan Insurance
Home Loan Insurance, also called a Home Loan Protection Plan (HLPP), is a scheme offered by most financial institutions. Under this plan, the insurer pays the borrower’s outstanding home loan balance to the lender or bank in case of unforeseen events, such as the borrower’s death.
A Home Loan Protection Plan (HLPP) or Home Loan Insurance is a type of insurance policy. If the borrower passes away, the insurer pays the remaining loan amount to banks, NBFCs, or housing finance companies.
The policy period usually matches the loan term. With Home Loan Insurance, the borrower ensures that their family won’t have to repay the loan or lose their home due to non-payment, even after their passing.
Importance of Home Loan Insurance Cover
Lenders aim to protect their funds and avoid bad debts. They prefer home loan insurance to prevent the loan from becoming a heavy burden. If the borrower, especially the sole earner, passes away, the lender risks losing a significant amount of money.
If the borrower fails to pay their bills, the home loan insurance plan covers the outstanding loan amount. This situation may arise due to job loss or death. Borrowers can choose a standard plan or one with additional features and extended rider coverage. Home loan insurance is crucial as it ensures that their dependents do not lose their home in their absence or during a financial crisis.
Key Features of Home Loan Protection Insurance
- Payment in One Lump Sum: Borrowers can pay the home loan insurance premium in a single lump sum. They can also include it in the loan amount and repay it through monthly installments.
- Joint House Loan Borrowers: The home loan insurance plan covers all co-applicants on the same loan. If multiple family members take a joint loan, the plan protects them by covering the outstanding amount in case of one borrower’s untimely death.
- Riders and Add-Ons: A basic HLPP covers the borrower’s death. However, by adding riders with an extra premium, borrowers can extend coverage to critical conditions like heart attacks, cancer, and severe injuries. Some add-ons also cover disability and unemployment, providing up to six months of EMI payments.
Best Home Loan Insurance Policy in India
- Hybrid Home Loan Insurance Plans: In a Hybrid Cover Plan, the insurer keeps the coverage amount constant for the first year. From the second year onward, it gradually decreases as the outstanding home loan balance reduces.
- Level Cover Plan: In a Level Cover Plan, the insurer maintains a constant coverage amount throughout the home loan term.
- Reducing Property Insurance for Home Loan: With this plan, the insurer decreases the coverage amount as the outstanding home loan debt reduces.
Term insurance and home loan insurance offer similar benefits. However, home loan insurance differs significantly from home insurance. Let’s explore the key differences between them.
Home Loan Insurance Benefits
- Tax Benefit: Buying a home loan protection plan helps borrowers receive a tax break. Under Section 80C, they can deduct the insurance premium paid.
- Affordability: Home loan insurance policies follow a one-time premium payment method, where borrowers pay the premium upfront. If their family cannot afford it, they can add the premium to the loan amount and repay it through EMIs, making the payment more manageable.
- Protection: Repaying someone else’s loan can be challenging. If borrowers fail to repay, lenders may seize the collateral. Home loan insurance prevents this by ensuring the borrower’s family does not face financial hardship after losing a key family member.
Conclusion
Home loan insurance provides financial security by ensuring that a borrower’s family does not struggle with loan repayment in times of crisis. It offers tax benefits, affordability, and protection against unforeseen circumstances like death or job loss. By choosing the right coverage plan, borrowers can safeguard their homes and prevent financial burdens on their loved ones. Understanding the differences between home loan insurance, term insurance, and home insurance helps in making an informed decision. Investing in home loan insurance is a smart step toward long-term financial stability and peace of mind.