Insurance with Home Loan (Types, Features and Benefits)

Home loans have become extremely popular in today’s world, but the personal and financial risks involved with them have increased too. Therefore, to protect you in such situations it is recommended to purchase an additional insurance with home loan known as the home loan insurance. To better understand the concept of home loan insurance, let’s understand what it means and analyze its features and benefits

What is Home Loan Insurance?

When you purchase a home loan, you are bound to pay its EMI regularly to the lender. However, due to unforeseen emergencies, you might experience a financial crunch which would result in default of EMI payment. This is where home loan insurance will help you as the insurance company will settle your outstanding home loan amount with the lender.

There is always confusion amongst people about home loan insurance and home insurance. While home loan insurance clears your home loan debt, home insurance offers coverage to your home and its contents against emergencies like fires, explosions, lightning, theft, burglary, etc.

Features of Home Loan Insurance

1. Premiums

A majority of home loan insurance plans have a one-time premium. The lenders often add this premium amount to your home loan amount i.e., you pay for the premium along with your monthly EMI instalments.
For example, you have purchased a home loan of Rs 40 lakhs and the premium for your home loan insurance is 2 lakhs. Your monthly EMI will be calculated for 42 lakhs.

1. Life cover

Home loan insurance plans also offer life cover. The amount of life cover in this plan is equivalent to your outstanding home loan amount. The cover is valid or offered only until the clearance of the loan.

1. Add on coverages

Several home loan insurance plans offer optional add-ons to enhance the cover benefits. Some add-ons offered are mentioned below-

• Terminal Illness Coverage
• Accidental Death Coverage
• Financial help for jobless people up to three to six months of EMI payments
• Disability coverage

Benefits Offered Under Home Loan Insurance

1. This insurance policy safeguards the borrower’s family from financial debt in case of his unfortunate demise.
2. You can get tax benefits for the premium paid on this policy under section 80C of the Income Tax Act.
3. The add-on coverages on this policy ensure that the outstanding loan amount is paid not only in the case of unfortunate death but also for critical illnesses and disability of the borrower.

The Two Types of Home Loan Insurances

You can buy home loan insurance in two forms- either as term insurance or separate home insurance.

Term Insurance– This policy covers all your liabilities and debts in case of emergencies.

Separate Home Insurance– This policy only clears the outstanding loan debt.

• Separate Home insurance policies come with reduced coverage. This means that the coverage is linked to the outstanding loan amount and gets reduced as you pay off the loan. In a term insurance policy, the coverage remains the same.
• While a term insurance policy reimburses you for the loan amount you pay to the lender, in the case of separate home insurance the amount is directly paid to the lender.

Points to Remember While Buying a Home Loan Insurance

• Home loan insurance is offered by both general life insurance companies and life insurance companies. General life insurance companies require you to renew the policy on an annual basis whereas life insurance companies offer the policies for longer terms. Choose wisely based on your needs.
• Always check that your insurance policies have riders that cover situations like unemployment, disability, natural or accidental death. These riders will help you gain extended coverage upon the original policy.
• Make sure that your insurance cover period and the loan tenure match.
• Avoid purchasing a shorter cover period while buying a home loan insurance when you’re young. This is because insurance companies usually hesitate to offer longer coverage to aged people. Even if they do agree, they might charge a very high premium for it.

Make sure that you are financially stable before purchasing insurance with home loan, as the total cost of EMI’s and premiums might take a toll on your savings. Also, make sure to compare different policies in the market to get the lowest premium amount with the best coverage.