So, you have taken or are planning to take a housing loan to fund your home purchase. Somewhere back in your mind, you may have a gnawing fear that what if something unexpected were to happen in the future to disrupt your repayment cycle? Life is unpredictable; however, we can stay prepared for the unseen the best we can – in this case, with an insurance on housing loan.
Home loan insurance: A simple way to protect your home and loved ones
Another term for Home Loan Protection Plan (HLPP), a home loan insurance is an insurance scheme wherein the insurer (the company providing insurance on the loan) will settle the outstanding repayment amount with the lending institution in case of an unfortunate incident including the demise of the borrower. Generally, the term of the insurance policy is the same as the loan tenure.
Importance of loan insurance
Such an insurance plan holds immense benefits, both for the lending authority and the borrower in question. Lenders, on the one hand, do not need to fear bad debts. In case of the borrower’s demise, a lender could lose out on a lot of money, especially when the deceased borrower was the single earning member of the household. Insurance on housing loan saves lending authorities this hassle with the assurance that the amount is covered.
On the other hand, insurance on home loan relieves the borrower of the fear that even after their demise, their family members will not be harassed for home loan EMI payment or asked to vacate the home.
Features and benefits of the loan insurance
- Both lenders and borrowers have adequate cover for the outstanding loan amount.
- The insurance policy could lapse under the following circumstances – loan balance transfer, housing loan restructuring, or complete repayment of the loan amount.
- In case a joint housing loan has been taken, a single insurance can cover all borrowers.
- One can also opt for enhanced coverage, wherein with some additional premium, disabilities and other critical illnesses can also be covered.
- This insurance plan, however, does not cover incidents such as suicide or death due to war or natural calamities.
Home insurance vs. home loan insurance
Despite the many differences, people still tend to mix up home insurance with home loan insurance. The two serve different purposes – A home insurance is a plan which covers your property against damage, either due to theft, fire, or natural calamities like storm and earthquake. An insurance on housing loan, on the other hand, covers the loan amount you take for purchasing your dream home; meaning, this policy only covers the outstanding loan liability from the time the loan was taken.
Types of insurance
Generally, three kinds of insurance covers are offered on housing loans. They are –
- Level cover plan – Under this plan, the coverage remains unaffected throughout the loan tenure.
- Hybrid cover plan – Under this insurance scheme, the coverage remains full for the first year after which it gradually starts reducing with the outstanding loan amount.
- Reducing cover plan – Under this plan, the coverage and the outstanding loan amount keeps reducing with the tenure from the very beginning.
It is always better to be safe than sorry, and one way to do so is to stay insured. Still haven’t taken a housing loan? Do so only after thorough research and planning. Compare lenders for home loan interest rates, check your eligibility, and determine your EMI in advance for an easy and hassle-free repayment experience.