Home Loan Insurance: A Simple Method to Protect Your Home Loan

Home Loan Insurance: Ways to Protect Your Home Loan

What is Home Loan Insurance?

Home loan insurance or home loan protection plans, as the name also goes (HLPP), is a scheme that almost every bank or NBFC offers to customers.

With home loan insurance plans, the insurer will settle the outstanding or balance home loan amount of the borrower with the financial institution in case of any sudden scenario, including the borrower’s demise. Thus, it is basically an insurance plan for the home loan. The policy tenure is mostly the same as that of the loan itself.

The borrower will thus get mental peace, knowing that their family members will not have to repay the due amount in case of their demise. This also means that they will not have to vacate the property accordingly due to non-payment. Hence, a home loan insurance policy is vital for almost every borrower.

Features and Benefits of Home Loan Insurance

Getting a home loan insurance cover usually comes with these key features and benefits:

• The housing loan insurance plan provides a lump sum amount in benefits which may be further used for the repayment of the sum outstanding (of the home loan).
• The beneficiary of the home loan or the policyholder receives the lump sum amount in question.
• As per Section 80C, there are tax benefits available on home loans for the home loan beneficiaries.
• A single home loan insurance is enough to offer coverage for all borrowers under joint home loans.
• By paying an additional premium, there can be riders and add-ons integrated into the plan, such as critical illness rider, disability rider, and more, which can cover specific medical ailments and conditions such as heart attacks, cancer, permanent physical disability and so on.
• Borrowers can flexibly repay the premiums for the policies, i.e. whole payment or single payment premium amounts or even annually. The latter is when the insurance amount is adjusted within the entire amount of the loan.
• Borrowers can conveniently convert their insurance premiums into amounts that may be added to the EMIs for home loans.

Why is Home Loan Insurance Important for Lenders?

Home loan insurance matters immensely for lenders, i.e. banks and financial institutions. This is because they are assured of receiving a settlement of the outstanding home loan balance or remainder in case of the demise of the borrower or any other listed emergency scenario. Hence, they do not have to incur losses in these situations or auction off properties to recover costs.

Why is Home Loan Insurance Important for Borrowers?

Borrowers should undoubtedly choose home loan insurance without a second thought. Life is unpredictable and uncertain. Thus, there is no guarantee that you or your family will not be affected by sudden illnesses or untimely death. Hence, getting these policies will bring greater peace of mind for the family in such situations, knowing that your loved ones will not have to shoulder the financial burden of the loan in case you are not around in the future.

Difference between Home Loan Insurance & Home Insurance

Many people often confuse home loan insurance with home insurance, although these are completely different concepts. Home insurance is what offers coverage for the property or home that you own against specific risks like damages due to natural calamities like fire, storms, floods, and even theft, among other aspects. The insurance, in this case, will cover the cost of damage repairs of your home.

Alternatively, home loan insurance means coverage for the loan taken to purchase a property. These policies offer coverage for the outstanding liability of the loan from the time that it is purchased. This means that if you are unable to repay your home loan EMIs due to unavoidable incidents like physical disability, loss of income, or major illness, the home loan insurance providers will cover them for you. Therefore, the majority of lenders have made home insurance compulsory. Yet, home loan insurance is not compulsory and often depends on the discretion of the borrower.

Overall, every borrower should understand the core difference between these policies, as one plan type is not a replacement for the other in this case.

Types of Home Loan Insurance

There are numerous kinds of home loan insurance plans that you will come across these days. Some of them include the following:

• Level Cover Plan

  The coverage in this plan stays the same for the insured policyholder across the whole tenure of the loan.

• Hybrid Cover Plan

  In this case, the coverage is full in the first year. Thereafter, it starts reducing with the loan balance amount also going down across the tenure.

• Reducing Cover Plan

  Reducing cover plans are those where the outstanding loan and coverage come down with the tenure.

Aspects to be Considered before Opting for a Home Loan Insurance:

There are several aspects that you should consider prior to choosing home loan insurance plans. These include the following:

• Term Insurance

  These plans are helpful for borrowers as well. The nominee will get a fixed sum assured (you can calculate this coverage amount by including your loans and liabilities as well) and may use the same to repay the loan.

• Separate Home Insurance

  Consider whether you need separate home insurance for your property. This will help you safeguard it against damages resulting from theft and even natural calamities. In fact, it will help you obtain the replacement costs of the property and its contents in most cases.

Riders and add-on benefits

You can widen the scope of coverage by opting for various riders and add-ons for your home loan insurance coverage, including disability rider, critical illness rider, or even accidental death benefit rider. These add-ons may prove invaluable in situations where you have to pay for medical treatments or any other thing while being unable to repay your home loan as a result.

Frequently Asked Questions

Is Home Loan protection insurance tax deductible?

Yes, you can claim tax deductions under Section 80C on the premium payments that you make for a home loan protection plan.

Does home insurance get tax benefits?

No, there are no tax benefits offered on home insurance for policyholders.

Does home insurance come under 80C?

No, home insurance does not have any tax benefits or deductions under Section 80C.

Is a home loan protection plan mandatory?

Home loan protection plans are not mandatory in most cases. They are usually dependent upon the discretion of the borrower. Some lenders may make them compulsory, depending on the borrower’s profile and credentials.

How much does a home loan insurance cost?

Home loan insurance costs may vary across lenders, depending on multiple factors including the value of the property, location, and more.

Can I close my home loan insurance?

In most cases, home loan insurance plans can be foreclosed and you should be able to get a refund after statutory deductions. However, cancelling home loan insurance without getting a new plan can be a risky proposition.