A home loan insurance policy is quite popular among home loan borrowers in the current situation where property prices are escalating. This insurance plan covers the outstanding home loan amount if you fail to repay it due to unforeseen circumstances. If you are willing to know more about this insurance plan, keep reading as this article presents a comprehensive guide on this insurance policy.
Why is Home Loan Insurance Plan necessary?
Under a home loan insurance plan, your insurance provider assures a lending institution to repay a home loan if you cannot clear the debt due to unforeseen situations.
These unforeseen circumstances may include your untimely demise or unstable nature of your job or anything similar that can put an excessive burden of repaying the housing loan on you or your family members in your absence.
Moreover, failure to repay a loan after a prescribed period can leave your family members homeless. This is because a lender holds the legal right to auction off your property and recover financial losses caused due to default in repayment. Therefore, opt for a home loan insurance plan to avoid such a scenario.
What are the top 4 features of a Home Loan Insurance Plan?
Take a look at the following features of a home loan insurance plan:
Single Premium Payment
Most home loan insurance plans only require a single premium payment. This implies you need to pay a premium amount once when borrowing a home loan. However, a financial institution often incorporates this premium amount into the monthly instalments of a home loan as the premium rate is high. Therefore, as a borrower, you can pay the premium as a part of the EMI to spread the financial burden throughout the repayment tenure.
Coverage Equivalent to Life Insurance Plan
Most home loan insurance plans offer high coverage, like a life insurance plan. However, their validity ends once the entire loan amount is repaid.
Additional Coverage with Add-ons
Several leading insurance providers offer add-ons. These add-ons come at an additional cost but maximise the financial protection against the following situations:
- Accidental death
- Severe illness
- Unemployed for the last 3 to 6 months
According to Section 80C, you can enjoy tax benefits on the premium paid towards a home loan insurance plan. However, note that if you pay the premium amount through home loan EMIs, you cannot avail this tax deduction.
What are the 3 types of a Home Loan Insurance Plan?
Mentioned below are the 3 types of a home loan insurance plans:
Level Cover Plan
Under this plan, the insurance coverage remains the same over the entire course of the repayment tenure.
Reducing Cover Plan
Under this plan, the insurance coverage does not stay constant and decreases with the reduction of the balance amount.
Hybrid Cover Plan
This type of insurance plan provides financial coverage to you for the entire home loan amount in the first year of repayment. After that, the insurance coverage also decreases with the reduction of the outstanding dues.
What are the things to consider before availing a Home Loan Insurance?
You must consider the following pointers before availing a home loan insurance plan:
You can obtain this insurance plan from a general insurer or life insurance company.
If you purchase this insurance plan from a general insurance company, you need to pay lower premiums and renew it annually. On the other hand, policies purchased from a life insurance company feature a longer tenure and a higher premium rate.
This home loan insurance plan is not a mandatory purchase when you apply for a home loan online. Moreover, like you compare home loans, make sure to do the same while investing in a home loan insurance plan. This will assist you in choosing the best offer available in the market.
To conclude, purchasing a home through a home loan involves a long-term financial commitment. During this course of repaying debts, unforeseen circumstances may arise. Therefore, be prepared with a home loan insurance plan to protect yourself financially against such mishaps.
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