Insurance For Home Loans
Indians have unshakable belief in real estate as an asset class. However, with burgeoning prices in almost all parts of the country, buying real estate has become a costly affair these days. Many people seeking to buy their first home are being forced either to postpone their decision. They have to wait for large finance capital.
Home loan insurance, or mortgage insurance is a popular term due to rising prices of properties. Most people looks out for ways to secure their families’ future by a home loan. Now, let’s find out what ‘Home Loan Insurance’ really is.
Home Loan Insurance is a scheme, where insurer will settle the outstanding Home Loan amount with the lender or bank, in case of any unforeseen happens. It is especially important for lenders if they don’t want their loans to turn into a bad debt. Home Loan Insurance insures that in event of borrowers’ demise. Lender will not loose a large sum of money, when the borrower is only a earning member.
It is also beneficial for borrowers. Because, the scheme covers the outstanding home loan in a situation where borrower fails to pay the debt occurring due to job instability or demise. It ensures that dependents of borrowers will not become homeless in event of such situation.
When insurance premium is added to the outstanding loan amount, borrower doesn’t have to pay anything upfront and get loan insured. As a result the equated monthly installment increases, but by a small amount.
Now there are some technical terms to to be taken care of, mostly the insurance policy itself.
Term Insurance– takes care of all your obliterates and debt. Coverage stays the same and sum assured is received by nominee who can make payment to lender themselves.
Separate Insurance– takes care of outstanding home loan, when you are unable to pay it off. The sum insure goes down when individual repays the amount successively. The insurer directly makes the payment for home loan outstanding to lender for repayment of the loan.
Here are few things to keep in mind while getting an insurance.
Insurance can be bought from General Insurance company or Life Insurance company. For general insurance, it needs to be renewed on yearly basis. It is beneficial to look into the clauses that defines situations like unemployment, disability along with death by natural means or accident.
Loan tenure must be equal to Insurance cover period. Because as you grow older, it becomes difficult to get a good coverage at low price.
Home Loan Insurance bits-to-know:
- Premium Payment- Most Home Loan Insurance are single premium policies, which makes payment for premium only once. As the amount of premium is high, lenders add premium to loan amount and borrower pays premium along with monthly loan amount, in instalments.
- Life Cover- Most Insurances offer life coverages, equal to home loan outstanding amount, which comes to an end when loan amount is cleared.
- Add-Ons- Several Insurances provide optional benefits like terminal illness, accidental death, unemployment and disability.
- If any unfortunate happens to borrower, insurer pays the rest loan amount.
- It is exempt from taxes under 80C
- Borrower can be in peace of mind when he /she is unable to work due to various causes, but can insure that the house he /she bought would be theirs.
Home Loan Protection is useful only when you don’t have an active term insurance cover for your family. It is also beneficial to get an insurance cover which is higher than the loan itself. In this way after your sudden misfortune, your family can be left with a huge lump sum, even after repayment of the loan itself.
Banks and non-banking financial companies tie up with select insurance providers and bundle home loan products with home loan insurance plans. Banks might try to promote home loan insurance only of companies who they have tied up with.
There might not be an option to pay separately for your home loan insurance and include the sum paid towards premium in loan amount; which in effect will increase your EMI.
Financial planning would help you arrive at the right amount of cover you may need to get yourself insured with while timely reviews would keep your insurance portfolio trimmed and cost-effective.