Taking a home loan is a long-term commitment. Home loans can extend up to 25 to 30 years or more. We all know life doesn’t come with any guarantee cards. Just imagine a situation the one who pays the EMI on a monthly or quarterly basis expires under unforeseen circumstances. Hence, the burden of paying the loan falls on the dependent family members. In case the loan is not repaid and the installments are not paid regularly, a situation may occur that the house or the collateral's will be seized.
In any of these cases, an asset that is precious to the family or that can be used during times of need can be seized due to non-repayment of the outstanding loan amount. Hence, it is in situations like these that you need to prepare beforehand to protect your family and loved ones. This is the reason home loan insurance becomes important and crucial and, one might argue, imperative!
How do you avail Home Loan Insurance?
Home loan insurance can usually be availed while procuring the home loan. It is available with the financial institution from which you are availing the loan and is often bundled with the home loan. While it is advisable to avail home loan insurance, it must be noted that sometimes it is sold as a mandatory part of the home loan, which should not be done. There are no Insurance regulations which mandate loans along with insurance. Hence, you must do your due diligence and pick insurance scheme that suits your needs rather than the one being offered to you.
How does this Insurance Work?
Home loan insurance is similar to a term insurance. You are covered under this insurance till the period of your loan repayment. Once the outstanding loan amount has been paid, the insurance term expires. However, if the individual who is paying the loan expires within the loan term period then the loan insurance can be claimed by the family to repay the outstanding home loan amount. This ensures that the house or the other assets as collaterals are not seized by the bank.
Payment of Premium
Most home loan protection schemes come with a one-time premium payment option. Buyers also have the option to club the premium amount with the total loan amount. For example - if the premium amount on Rs 50 Lakhs loan is Rs 2 Lakhs, then the buyer has the option of taking a loan of Rs 52 Lakhs. During repayment of the outstanding loan amount through EMIs, they can also club the premium in the EMI.
Important for lenders too
Financial institutions do not want any of their loans to turn into bad debts. In all situations, their objective is to protect their loans in order to avoid the same turning into a bad debt. Therefore, these financial institutions want borrowers to take home loan insurance protection. In the event of the borrower’s demise who has not taken the home loan protection, the financial institutions have to go through the hassles of seizing the asset and liquidating the same in order to recover the outstanding loan amount. Therefore, if the borrower is covered through this insurance then it is good for the financial institutions too!
Riders and add-on benefits
Several home loan insurance providers also offer home loans insurance schemes with optional rider plans to enhance their cover benefits. Riders like, terminal or critical illness, accidental death, unemployment and disability can be clubbed with home loan protection plans.
Home loan insurance is not compulsory while availing home loan. However, as a means of securing your finances and assets, an insurance of this nature becomes important. As a buyer of insurance, you must remember to do your own research before availing this option. Financial institutions may try to sell you insurance for their profits but you must buy the one that suits your needs. Also, you do not have to buy the insurance immediately while availing a loan. You can buy the insurance later through some other financial institution or bank or portals that sell insurance. Home loan insurance therefore provides you with the much needed peace of mind as it protects your family from any unforeseen circumstances.