A common goal for many of us is to own a home. It’s a representation of sound financial standing and a location where we make enduring memories. But getting a house loan is a big financial commitment, so you have to safeguard that investment. Home loan insurance is one way to accomplish that. We’ll explore home loan insurance in this blog, including its definition, benefits, and operation.
What is Home Loan Insurance?
A particular kind of insurance coverage called home loan insurance is made expressly to shield borrowers against unanticipated events that can affect their capacity to repay their home loan. It serves as a safety net, offering assistance when needed and paying off the remaining loan balance in cases of death, disability, serious sickness, or unemployment.
You might choose to get term insurance on your home loan in addition to standard protection insurance for your loan. In the event of the borrower’s death, this kind of insurance pays the remaining balance on the home loan. It guarantees that your family can keep ownership of the property and is not saddled with the repayment obligation.
5 Reasons Why You Need Home Loan Insurance
- Protects Your Investment: Home loan insurance protects the investment against unanticipated events like the borrower’s death, accident, or job loss. In spite of the adverse conditions, it settles the loan.
- Easy Premium Payment: The majority of home loan insurance products only require a single premium payment, which saves you money over time. Lenders offer the opportunity to add the premium to the loan amount because of the high cost. In this manner, the premium is subtracted from the EMI.
- Tax Benefits: Under section 80 C, you can gain tax-wise from home loan insurance. Please be aware that you will not receive the tax benefit if you increase the amount of your loan and pay the premium through EMIs.
- Additional Coverage: For an additional fee, riders or add-ons can be applied to a home loan insurance policy to provide more coverage. The policy is strengthened by the extra coverage, which provides coverage against medical conditions, critical sickness, disability, accidental death, and job loss.
- Protects Family: Home loan insurance shields the policyholder’s family from financial hardship in the event of an investment loss and loan payment stress. Because it shields lenders against bad debts, home loan insurance is beneficial to both borrowers and lenders. A home loan is approved when you apply for it and is secured by your house; if the loan is not returned, it turns into a bad debt. Home loan insurance protects against bad debt conversion and reduces the time and labor required to sell a property connected to a bad debt account.
How Does Home Loan Insurance Work?
Term insurance and house loan insurance operate on the same principles. For the duration of the loan, a lender insures a borrower’s home loan plan. The insurance policy expires as well and the loan balance is paid off. If a borrower dies while the loan is in effect, the insurer will, subject to terms and circumstances, settle the outstanding loan amount with the lender through property insurance for a home loan.
Banks or HFCs are guaranteed protection by an insurance firm through the use of a home loan protection plan (HLPP). Any loan balance that the borrower’s family is unable to pay will be settled by the insurance provider. Additionally, the family is shielded from losing their collateral or belongings.
Eligibility Criteria of Home Loan Cover Plans
- Coverage Amount: Your remaining loan balance often determines the insurance coverage level for home loans. You might need more coverage the larger the loan amount. At IIFL Home Loans, loan amounts begin at little Rs 2 lakh.
- Premiums: The loan amount, the insured’s age, health, and the length of the insurance policy are among the variables that determine the insurance premium. The premium is often paid once a year, however, some insurance companies allow for variable payment schedules. Select a payment schedule that makes sense for your cash flow and budget.
- Eligibility: The requirements for eligibility could differ throughout insurance companies. Generally, house loan insurance is available to people in specific age ranges, such as 18 to 75. During the application process, additional information is gathered about your lifestyle, health, credit score, and property location.
Things To Remember Before Buying The Home Loan Insurance Policy
- Either a general insurance company or a life insurance company may offer house loan insurance to borrowers.
- General insurance businesses offer policies with cheaper prices that must be renewed annually.
- Companies that provide life insurance policies offer coverage for a longer period of time at a premium.
- Make sure your home loan insurance is in compliance with the new lender’s policy in the event that you transfer your loan to them later on, or restructure it to prevent policy lapse.
- The current home loan insurance payment won’t be sufficient to cover the loan amount if the length of the loan is extended as a result of an increase in interest rates.