Buying a house features amongst the goals of almost every Indian. The popular choice for financing your home is opting for a home loan. But, what if something happens to you before the entire loan is repaid? The liabilities pass down to your family. Are you willing to leave behind your family in financial stress? A prudently chosen insurance can secure your dream. Homebuyers have two choices- secure the home loan with a home loan insurance or opt for a term insurance policy. Term insurance can be used to secure your family for the period of the home loan. In case something happens to you in that period, the death benefit can be used to pay the remainder of the loan. Whereas, a home loan insurance secures your dear ones from unforeseen events by settling the outstanding home loan.
We do a term insurance vs. home loan insurance comparison and provide you with an insight into various aspects of these plans to help you choose wisely.
Premium is paid in a lump sum for a home loan insurance. The one-time payment makes the premium rate higher than other insurance plans. Besides, the premium for home loan insurance is added to the home loan amount. Premiums of a term insurance policy are lower than home loan insurance. The premiums can be calculated using a term insurance premium calculator and paid annually, half-yearly, quarterly or monthly. Thus, a term insurance policy is more affordable than home loan insurance in terms of premium.
The term insurance provides coverage for a specified period of one’s lifetime. If the policyholder dies within that specified period, then the nominees are paid the death benefit in a lump sum with which the family members can pay off the home loan. After the death of the policyholder, the term insurance can settle any outstanding debt, thus saving the family members from the sudden financial burden of paying off the loan. This reduces the risk of incurring bad debts as the term insurance will discharge the outstanding liabilities. home loan insurance can be purchased while obtaining a home loan. The home loan insurance covers the borrower for the period of the loan repayment. The home loan insurance expires when the outstanding loan amount has been paid. Likewise, the coverage decreases as the loan gets repaid. If the borrower dies within this period, then the family members can claim the loan insurance to clear off the outstanding loan amount.
Under Section 80C of the Income Tax Act 1961, a taxpayer can claim a deduction of Rs. 1.5 lakh from the taxable income. A term insurance policyholder is eligible for this deduction downsizing the tax liability. Home loan insurance offers the same tax benefits under Section 80C as the premium of the home loan insuranceis added to the home loan. It depends upon the period of the term insurance and the home loan to determine the duration of the tax benefits.
Home loan insuranceas well term insurance have rider plans covering specific conditions like critical illness, disabilities, accidental deaths and unemployment. These add-on benefits enhance the insurance plans. However, a home loan insurance policy with these add-ons generally has a higher cost than the regular plans.
A home loan insurance is optional with security against the home loan while a term insurance policy takes care of all your liabilities. Weigh these policies against your needs, goals and financial prospects to make an informed decision.