Everyone dreams of owning their own home someday. People purchase properties for various reasons, most often for their families, or for investment purposes. But buying a house entails a lot of financial decision making and can become a confusing affair. This is where home loans and home loan insurance come into the picture.
Opting for home insurance is the best way to safeguard your home. This scheme protects your home against possible threats, such as natural disasters or burglary, offering coverage to your house. Certain home insurance schemes even include protection for any expensive appliances or furnishings you may have within your house. Since buying a home costs a hefty amount, opting for this insurance plan is a smart idea as it considers any potential risks that can occur anytime.
But when you avail of a home loan, you run the risk of becoming unable to repay the borrowed amount. This is why the option of availing a home loan insurance exists. Also known as mortgage insurance, or more commonly as a home loan protection plan, this insurance scheme safeguards you against unforeseen circumstances that may risk a default on the home loan, like sudden demise, illness, accidents, or job instability. In such an event, this insurance against home loan necessitates that the insurance company will settle the outstanding home loan debts with the concerned bank or lender.
Opting for housing loan insurance to accompany your home loan not only covers outstanding debts in case of any abrupt or sudden events, but it also ensures that any dependents, such as your family, do not lose the house or become homeless in your absence or in a crisis. If you do not avail of a home loan insurance policy, the bank has the right to seize the house as collateral in case of your demise, forcing your family and loved ones to vacate. Even if the house is not seized, your family will still be left to pay off the home loan. Thus, such an insurance cover becomes almost essential.
A home loan insurance plan can be availed when you are applying for a home loan, and only covers the loan and not the house. While the financial institution you are availing the home loan from usually offers the home loan insurance plan with it, you can opt to buy the cover plan from any other insurance company, independent of the lender.
A home loan insurance will cover you until you have completed all the payments for your home loan. Once the outstanding amount has been paid, the insurance term expires with it.
Most insurance covers are offered with a one-time premium payment. Some fine-print details about the premium are that the amount varies according to a variety of factors. The premium amount depends on your age and medical record. If you are older, the premium is likely to be higher, and if you are in good health, the premium will be lesser. Another thing to keep in mind is that if your loan amount is higher, the premium amount will also be higher. The tenure of your loan also affects the premium – the longer the tenure, the higher the cost of the premium will be. So it’s important to keep all these factors in mind when opting for a premium. One large benefit of availing the premium payment is that you can claim a tax deduction under Section 80C of the Income Tax Act.
Most lenders offer riders that you can add on to your plan, which will allow you to cover disability or critical illness. While these are good options and offer more coverage, it is advisable to choose a plan that suits your needs best. Another thing to keep in mind is that you can opt to buy housing loan insurance at any time throughout the tenure of your home loan.
Mortgage insurance adds extra security, but it is not mandatory to purchase an insurance cover with your home loan. Lenders will try to push you to avail one as they also do not want to run the risk of a potential debt in case you falter on your payments. Regulatory bodies such as the RBI have not made the purchase of an insurance plan compulsory, and have left it to the sole discretion of the buyer.
If you are looking to buy a home for you and your loved ones, or are looking to invest in a house, we at Assetz Property Group have compiled a detailed guide to purchasing a home loan to ease the process for you. Keeping all homebuyers in mind, we have also written an article for NRIs looking to invest in real estate.