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Home loan insurance benefits for new home buyers 

Home loan insurance benefits for new home buyers 

Buying a home is a proud moment; it’s where dreams meet reality. For most new-age homeowners in India, taking a home loan is the first step in that journey. But while you’re planning every detail of your new space, have you thought about how your family would manage the loan if life suddenly throws a curveball? That’s where home loan insurance benefits become truly valuable. From covering the unpaid loan in case of unexpected events like death, disability, or even job loss, this type of insurance can take a huge weight off your loved ones’ shoulders. In this blog, let’s break down what home loan insurance is, why it matters, and how it brings peace of mind when it’s needed most.

What is home loan insurance?

Home loan insurance, also known as a Home Loan Protection Plan (HLPP), is a type of insurance that covers the outstanding home loan amount in case of the borrower’s untimely death. In such situations, the insurance provider repays the remaining loan amount directly to the lender, ensuring that the borrower’s family is not burdened with repayment or at risk of losing the home. The policy term usually matches the loan tenure, offering continuous protection throughout the repayment period and providing peace of mind that the home remains secure, even in the face of unforeseen events.

Characteristics of home loan insurance

A housing loan insurance aims to protect borrowers and their families from the burden of outstanding home loan liabilities in unforeseen events. The key characteristics of loan insurance are:

  • Coverage duration: The insurance for a home loan is available throughout the loan tenure.
  • Premium payment options: You can pay the premium for the home loan protection plan in a single lump sum or add it to the EMI. 
  • Covers co-borrowers: The mortgage insurance benefits extend to the co-borrowers in case you have taken a joint loan. This means that the insurance covers the share of the co-borrower in case of an unforeseen event or mishap. 
  • Riders and add-ons: Home loan insurance features can go beyond the coverage of the borrower’s death. You can add riders, such as critical illness or permanent disability, to enhance coverage. 

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Benefits of home loan insurance for new home buyers

When you’re buying your first home, you’re probably making one of the biggest financial transactions you’ll ever make in your life. Also, EMIs, at least, are not a short-term affair for most, and life can be unpredictable.

Here are some key reasons why opting for home loan insurance is an important financial decision:

1. Protects your family’s financial future

In the unfortunate event of the borrower’s death, the outstanding home loan is repaid by the insurer, ensuring that the family retains ownership of the home without added financial burden.

2. Reduces financial risk

Insurance coverage minimizes the risk of loan default due to death or permanent disability, safeguarding the borrower’s financial profile and providing security to both borrower and lender.

3. Peace of mind

Knowing that the home loan will be covered in difficult times provides emotional and financial reassurance to the borrower and their family.

4. Affordable premiums

Most home loan insurance policies have a one-time premium that can even be added to your loan amount.

5. Covers multiple risks

Modern home loan insurance plans go beyond just life cover. Many include critical illness cover, job loss protection, and even permanent disability benefits.

6. Easy integration with your loan

Lenders often offer bundled insurance options at the time of loan approval, making the process smooth and ensuring immediate coverage.

7. Customizable coverage

You can select a plan that’s right for you, whether that be basic life cover or complete protection that also covers your spouse or co-borrower. This makes your policy adaptable to your financial needs.

The overall home loan insurance benefit is clear—it shields your loved ones from financial stress during already difficult times.

8. Tax benefits

Section 80C provides you with tax benefits from home loan insurance. Please be aware that you do not receive the tax benefit if you increase the amount of your loan and pay the premium in installments.

Importance of home loan insurance

Many borrowers wonder why home loan insurance is needed. The following reasons highlight the importance of loan protection for Indian borrowers:

  • Protects family members: If the borrower has an untimely death or disability, the home loan protection insurance helps repay the outstanding loan. It prevents a financial burden on dependents.
  • Provides peace of mind and secures the home: It reduces the risk of loan default, helping families retain ownership of their home during difficult times.
  • Safeguards the lender: The home loan insurance policy ensures timely recovery of dues, reducing credit risk for lenders.

Also,Read-   Important Tips for Lowering Home Loan Interest Rates

 
Different types of home loan insurance plans

Home loan insurance is not a one-size-fits-all solution. Below are the commonly available types of home loan insurance plans:

1. Term-based plans

These plans reduce the sum insured as your loan amount decreases over time. It’s aligned with your repayment schedule.

2. Level cover plans

Here, the sum insured remains constant throughout the policy period. This could be useful if your income is expected to grow and you want more stable protection.

3. Comprehensive plans

Some policies combine term insurance with additional benefits like critical illness, job loss, or disability cover.

Home loan insurance vs. Term insurance

A popular question is whether one should go for term insurance in lieu of home loan insurance. Here’s how they compare:

AspectHome Loan InsuranceTerm Insurance
PurposeCovers your home loan liabilityCovers the overall financial needs of your family
Payout useGoes to the lenderGoes to your nominee (flexible use)
CoverageDecreases with loan repaymentFixed cover throughout the policy term
PremiumUsually one-time; can be clubbed with a loanPaid regularly (monthly/yearly)
TenureLinked to the loan termFlexible, based on your choice
Add-on benefitsMay include illness/disability coverRiders must be added separately
Who benefitsPrimarily protects the lender, indirectly helps the familyDirectly benefits the family
PortabilityNot portablePortable and independent

When should you buy home loan insurance?

The ideal time to purchase home loan insurance is at the time of applying for your home loan. This ensures immediate coverage and sometimes allows you to club the premium into your loan amount. Banks and housing finance companies mostly provide bundling products or offer you the freedom to select an insurer. The lender might even try to present it as mandatory, but you must remember that home loan insurance is not compulsory. That said, it’s mostly a good choice for first-time buyers.

Whether you’re buying a small flat or a spacious house loan package,  insurance should be part of your checklist.

Things to consider before buying home loan insurance

Before you purchase a home loan insurance policy, ask yourself the following:

  • Does the policy offer comprehensive coverage, including death, permanent disability, and critical illness?
  • Is the premium payable as a one-time amount or in installments over the loan tenure?
  • Can the policy be transferred in case you choose to refinance or switch lenders during the loan period?
  • What is the claim settlement process, and how efficient is the insurer in handling claims?
  • Are there any waiting periods, exclusions, or coverage limitations that could impact your protection?

Conclusion

Purchasing a home is a long-term investment, and safeguarding it should be considered as part of your financial planning. Home loan insurance protects you so that an uncontrollable event

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FAQs

Is it necessary to take insurance on a home loan?

No, it is not compulsory to avail of home loan insurance; however, it is recommended for financial security.

What is covered under home loan insurance?

This protection covers the remaining loan balance in the event of the borrower’s death and may include additional provisions for critical illness, job loss, or disability on some policies.

Is it good to take home loan insurance?

Yes, it provides peace of mind and ensures your family doesn’t inherit debt in your absence, making it a smart choice for most borrowers.

Is it necessary to take insurance for home loan?

No, it is not compulsory to avail of home loan insurance; however, it is recommended for financial security.

What is covered under home loan insurance?

A home loan protection plan covers the remaining loan balance in the event of the borrower’s death and may include additional provisions for critical illness, job loss, or disability on some policies.

Is it good to take home loan insurance?

Yes, it provides peace of mind and ensures your family doesn’t inherit debt in your absence, making it a smart choice for most borrowers.

Can I buy home loan insurance from any insurer or only from my lender?

You can buy housing loan insurance from any IRDAI-registered insurer. There is no need to purchase it from the lender, even if the lender claims that home loan insurance is mandatory. Lenders will offer preferred plans, but you must review and compare them with the plans offered by an external insurer. The home loan insurance policy you buy must meet the lender’s coverage and assignment requirements. 

What are the premium payment options?

The premium payment options for a home loan protection plan are a single lump sum, regular annual premiums, and limited-period premiums. Some lenders allow you to add the premium to the home loan amount and repay it as part of the EMI.   

How is home loan insurance different from term life insurance?

A home loan protection insurance covers only the outstanding loan amount and reduces as you repay the loan. A term life insurance, on the other hand, provides a fixed sum assured to the nominees. This amount does not change due to liabilities. Thus, a term life insurance protects you against much more than just the home loan.  

What riders/add-ons are usually available with home loan insurance?

The common riders/add-ons included with an insurance for a home loan include critical illness cover, permanent disability cover, accidental death benefit, and job loss protection. These add-ons enhance coverage by protecting you against specific risks that can affect your ability to repay the home loan. 

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