Home Loan Insurance
Borrowers should manage their finances carefully. However, getting home loan insurance is optional when borrowing from banks, NBFCs, or housing finance companies. Regulatory bodies like the RBI and IRDAI do not mandate purchasing home insurance with a home loan from any financial institution.
Meaning of Home Loan Insurance
Home Loan Insurance, or Home Loan Protection Plan (HLPP), is an insurance scheme offered by most financial institutions. It covers the remaining home loan balance, ensuring that the insurer settles the debt with the lender in case of unforeseen events, including the borrower’s death.
A Home Loan Protection Plan (HLPP), also known as Home Loan Insurance, is a type of insurance that ensures the remaining loan balance is paid off by the insurer to banks, NBFCs, or housing finance companies if the borrower passes away.
The policy term usually aligns with the loan duration. By opting for Home Loan Insurance, the borrower ensures that in the event of their death, their family won’t have to repay the loan or risk losing the home due to non-payment.
Importance of Home Loan Insurance Cover
Lenders aim to protect their funds and avoid bad debts. To prevent a home loan from becoming a significant burden, they may require home loan insurance. In the event of the borrower’s death, especially if they are the family’s sole breadwinner, the lender stands to lose a substantial amount of money.
If the borrower fails to repay the loan, the home loan insurance plan will cover the outstanding amount. This situation might arise due to job loss or the borrower’s death. Borrowers can choose a basic plan or one with added features and broader coverage. Home loan insurance is crucial as it ensures that the borrower’s dependents don’t face the risk of losing their home in the borrower’s absence or during a crisis.
Characteristics of Home Loan Protection Insurance
- Lump Sum Payment: The premium for home loan insurance can be paid upfront in a single payment. Alternatively, buyers can include the premium in the total loan amount and pay it through monthly installments.
- Joint Home Loan Borrowers: A home loan insurance plan covers all co-applicants on the same loan. If three family members are insured under the plan, it provides protection in the event of the untimely death of any one of them.
- Riders and Add-ons: The basic HLPP covers the borrower’s death, but you can enhance your coverage by adding riders for an additional premium. These riders can extend protection to include critical illnesses like heart attacks, cancer, and trauma. They can also cover disability and unemployment, providing up to six months of EMI payments.
Best Home Loan Insurance Policy in India
- Hybrid Home Loan Insurance Plans: In a Hybrid cover plan, the coverage amount remains fixed during the first year and then gradually decreases from the second year onward, in line with the reducing outstanding balance of the home loan.
- Level Cover Plan: Under the Level cover plan, the coverage amount stays the same for the entire duration of the home loan.
- Reducing Property Insurance for Home Loan: With this plan, the coverage amount decreases as the outstanding home loan balance reduces.
Term insurance and home loan insurance offer similar benefits, but there are key differences between home loan insurance and home insurance. Let’s explore these distinctions.
Home Loan Insurance Benefits
Tax Benefit: Buying a home loan protection plan is a great way to secure a tax advantage. Under Section 80C, you can claim a deduction for the insurance premium paid.
Affordable: Home loan insurance typically involves a one-time premium payment. If this upfront cost is unaffordable, the premium can be included in the loan amount and repaid through EMIs, making it easier to manage.
Protection: Repaying a loan on behalf of someone else can be challenging, and if you fail to do so, the collateral securing the loan may be forfeited. Home loan insurance prevents this situation by ensuring that the borrower’s family is protected and avoids hardship after the death of a key family member.
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