Gone are the days when Indians would depend on savings to finance their dream of owning a home. Today, a sizeable chunk of the population takes home loans to buy their dream home, and the growing financial literacy has also instilled the realization that it’s critical to offset the implications of unforeseen situations by having a safety cushion for such loans.
Home loan insurance is the safety cushion that ensures that in the event of an untoward incident, the insurer repays the outstanding loan amount. In fact, home loan insurance is a wise move for both the lender and the individual taking a home loan. While the borrower gets the peace of mind knowing that the burden of repaying the loan, in case of a mishap, won’t harrow their family, the lenders too get the surety of the money coming back.
However, don’t confuse home loan insurance with home insurance. Home insurance safeguards your house against damages caused by fire, theft, lightning, etc., whereas home loan insurance is the security of getting your home loan repaid.
Benefits of taking home loan insurance:
Besides the safety net, home loan insurance also provides the following benefits:
The premium paid towards your home loan insurance can help you save tax under Section 80C of the Income Tax Act.
Option to strengthen the potential of your insurance
While the home loan insurance assures the lender of your home loan repayment even in the event of death, taking additional riders such as a critical illness or disability rider can further boost your insurance plan. In such cases, where you may go through temporary or permanent job instability, your home loan still gets repaid.
Which home loan insurance should you buy?
Typically, there are two types of home loan insurance that you can opt for: Term insurance and Separate Home Insurance.
Term insurance is more comprehensive, in the sense that it can cover all liabilities and debts. Since the amount is paid directly to the nominee, it can be used to pay off the home loan and associated liabilities.
Separate Home insurance is more of a concentrated option, wherein the insurer directly pays the lender the outstanding amount.
You can take home loan insurance either from a life insurance company or a general insurance company, but note that your choice of the lender can govern the overall benefit you get with your insurance plan.
While home loan insurance is not mandatory for a borrower, it’s a prudent choice as you secure not just your future but also the future of your loved ones who will not be hassled if you’re unable to repay the loan.