If you’re out buying a home using a home loan, you might already have dealt with lenders pushing you to take their loan protection plan. Though not mandatory, having mortgage insurance can help you stay afloat in times of financial distress. Plus, it provides assurance to the lender as well.
But how does it work? Well, let’s find out.
Loan insurance: How it works
Like health insurance helps you cover hospital bills, mortgage insurance helps you or your family cover your loan EMIs in case of your unfortunate demise, disability, or loss of job. The insurance provider, based on your coverage, will settle the remaining amount with the loan provider. This way, both you and your lender are protected. Plus, the burden of debt will never fall on your family.
However, mortgage insurance isn’t the option available.
Additional Read – What Happens When a Home Loan Borrower Passes Away?
Term insurance: What it is and how it works
Term insurance is another option you can go for in case you don’t find a loan protection plan suitable. In term insurance, the insurance provider will pay a lump sum amount upon your death to your beneficiary or dependant, who, in turn, can use it to clear your loan.
Like loan insurance, term insurance also doesn’t provide any maturity benefit. Though both work in essentially the same way, there are certain differences between the two options. Read on to find out.
Term insurance Vs home loan insurance
When it comes to cost, the premium for a mortgage loan is higher than a term insurance policy. In terms of coverage, a term plan provides a death benefit that you can use for any purpose. In contrast, a mortgage loan will only cover your loan repayments and nothing else.
Also, as you repay your loan, the sum insured for a mortgage loan keeps decreasing until it becomes zero on complete repayment.
Moreover, if you aren’t happy with your home loan interest rates or loan terms and wish to switch lenders, you won’t be able to transfer the loan insurance.
Lastly, to get the insurance benefits, you have to pay regular premiums for term insurance. As a result, you can claim tax on the premiums under section 80C. In contrast, since mortgage insurance is a one-time payment, you can’t avail of any tax benefits.
Additional Read – Home Loan Tenure: Short Term loan vs Long term loan – How to choose?
Over to you
In terms of price, a term insurance plan is the best choice when compared to mortgage insurance. Plus, with term insurance, you also get flexibility when using the sum insured. With the added tax benefits, term insurance is undoubtedly the insurance of choice.
And if you’re looking for a suitable loan provider to finance your dream home, Tata Capital is here to make that happen! With our affordable loans, easy home loan eligibility, fast loan processing, and excellent customer service, you can buy the perfect house in no time and pay it back without any hassles.
Use our home loan EMI calculator today to get a better sense of your loan repayment schedule.