A home loan insurance scheme is a policy, under which the insurer settles the outstanding amount of home loan with the creditor or bank, in case of emergency or unforeseen situations. Presently, home insurance has become extremely popular in India. It is also referred to as mortgage insurance. Well, as you know, future is unpredictable. They decide to secure their future, along with the ones of their loved ones with a home loan insurance coverage. The reputed companies have come up with some comprehensive house insurance schemes, that cover the house along with all the contents in it along with the applicant. The policyholder also enjoys tax benefits on the premium.
It is not compulsory for you to have an insurance on home loan in India. However, when you take a home loan, certain creditors might require you to have such a coverage.
Benefits of home loan protection schemes
- In case the borrower demises, the outstanding loan is repaid by the insurer to the creditor or bank
- Under Section 80C of the Income Tax Act, you can get some tax benefits
- Certain schemes come with add-on coverages, that can enhance the insurance plan for home loan. These may include critical illness rider or disability rider, or job loss cover where the outstanding amount is paid off by the insurer.
Why do creditors want you to have an insurance on home loan?
When you apply for a home loan, the creditors would not you to default with the same. In case the borrower expires or any unforeseen incident takes place, these loans can turn into debts. It is obvious that they would opt for a mechanism to keep their money protected. Eventually, they expect the owners to get a home insurance cover. The lender can lose a lot of money, in case the borrower expires before the amount is refunded. Particularly, if the borrower happens to be the only earning member of the family, the creditors would not like to take the risk.
Importance of home loan insurance for borrowers
If you are planning to obtain a home loan, you should understand why you should actually buy an insurance cover for the loan. In case you fail to clear the debt, the insurance will help you out. These days, many people prefer buying job loss cover, so that they do not run into financial difficulties if they happen to lose their job. Even if they cannot attend the workplace for a few months due to medical reasons, they can benefit from these schemes. You can buy a job loss cover in addition to a house insurance policy. In case you face instability at the workplace, the scheme can help to clear the debt.
When you buy a home loan insurance policy, you can go for the ones that offer riders and additional features. Eventually, you can benefit from the comprehensive coverage. As a borrower, it is important for you to buy such a cover, so that your family members do not become homeless during your absence. Besides, these policies can help you out during crisis situations.
Things to consider before you buy a home loan insurance
If you are planning to buy a home insurance scheme to secure the loan, you have two options:
- Term insurance: When you buy a term insurance policy, the insurer takes care of all your debts and liabilities.
- Individual home insurance: Only your home loan comes under the coverage of this scheme, and you can benefit from the same when you are not able to make the payment.
When you buy a scheme to keep the home loan secure, you need not worry about repaying the loan. The coverage size is linked to the outstanding home loan. This indicates that as you keep repaying your loan, the insured amount decreases. You may visit the websites and explore the house insurance schemes before you finally make the decision.
However, if you buy a term insurance policy, the coverage remains constant. The nominee receives the sum assured in case of term plans. The person can then make the necessary payments to the bank or creditor, eventually setting the loan. When you have a home loan insurance in place, the insurer directly makes the payment to the creditor to settle the outstanding amount of loan.
If you are planning to buy a home loan insurance, you can get across to a life insurance or general insurance company. If you buy the policy from a general insurance company, you will have to renew it annually. Life insurance companies offer longer terms for these policies.
When you approach one of the reputed companies for these schemes, it is important to know the add-on covers and riders that they offer. It is wise to buy a plan where you can get coverage for disability and unemployment, along with death. You should also check whether or not the policy covers accidental demise or natural demise, or both. Most of these insurance schemes come with a job loss cover. This keeps the borrowers protected from unforeseen situations in the professional circuit.
Tenure of your home loan insurance policy
You need to watch out for the coverage period of the insurance and the tenure of the loan. It is wise not to go for a shorter period of cover, if you think that you can get it extended later on. Chances are high that people forget to extend it in future. Besides, when you keep aging, it will become increasingly difficult to get a good coverage. Even if you manage to find one, it will be very expensive.
If you are willing to buy a home insurance, you can get across to the reputed companies online. Besides, when you buy the protection scheme, make sure that it covers all the relevant requirements. Visit the online portals and compare the schemes available in the market. The reputed insurers have designed several customized schemes for the policyholders. Sort your expenses before you finalize the scheme you would buy, considering the EMI payments.
Therefore, it is not necessary but advisable to buy an insurance on a home loan in India.