When it comes to protecting a house, people often suggest buying a home insurance policy. But you have also heard people recommend home loan insurance to those who have purchased their house with the help of a home loan. A lot of people often get confused between home insurance and home loan insurance. This article states the stark differences between home insurance and home loan insurance.
What is Home Insurance?
Home insurance is an insurance plan that protects your home and its contents from any unforeseen loss or damages. It covers the cost of renovating your home as well as repairing or replacing the damaged or lost contents of your home. It safeguards your home and your personal belongings from any loss or damages arising out of unpredictable events, such as fire, theft, natural calamities (like floods, landslides, storm, etc) and manmade disasters (like riots, strikes, etc.).
Broadly, a home insurance policy provides two types of coverage - structural damage cover and content damage cover. As the name suggests, home insurance with structural damage cover provides financial assistance only if the structure of the house or building has been damaged. For example, if a flood destroys your building, it will be covered under structural damage.
On the other hand, home insurance with content damage cover provides monetary support for only the loss or damages caused to the contents of your home, such as the furniture, appliances, etc. For example, in case the fire in your house destroys your TV, fridge and furniture, the cost of repairing or replacing these items will be covered under content damage cover.
Some home insurance companies also provide financial aid in case one of your employees or a third party person gets injured in your house. For example, if your maid gets injured inside your house when an earthquake strikes, your insurer will pay her the compensation on your behalf. Similarly, if a part of your house falls your neighbour’s car crushing it to pieces during the earthquake, your third party liabilities will be paid by your insurance provider.
A home insurance policy can be purchased by house owners as well as tenants. However, tenants will only get content damage cover as they do not own the house they live in. The cost of repairing the damages to the structure of the house is a responsibility of the landlord or the house owner.
What is Home Loan Insurance?
Home loan insurance is an insurance plan that covers the home loan liabilities of a person in case he/ she is unable to meet them due to an unforeseen event. It pays your monthly home loan instalments in case you are no longer capable of paying them. It protects you from the risk of not repaying your home loan in case an unpredictable incident makes it impossible for you to afford it. Thus, a home loan insurance policy prevents you from losing the ownership of your house in case you default your EMI payments. It also comes to the rescue of your family and pays your remaining home loan amount in case of your untimely demise.
The coverage of a home loan insurance plan may differ from one provider to another. Most insurers only cover the risk of repaying the home loan in case of the untimely death of the homeowner/ the borrower. Some insurers may also provide this cover in case the homeowner suffers from a critical illness, gets disabled or loses his/ her job. You must go through the terms and conditions of an insurance plan before buying it.
A home loan insurance policy also provides you with the opportunity to borrow a large sum of money while keeping the payments low. Your policy may cover more than 80 per cent of your house’s value as it provides coverage for the bank or financial institution’s risks. Besides, the premiums that you pay for your home loan insurance is eligible for tax deductions under section 80C of the Income Tax Act of India. Moreover, it also reduces the down payment of your house if you take a home loan insurance policy.
However, the home loan insurance policy cover shrinks as you repay your loan. This happens because your liability towards paying the home loan reduces with time as you pay your EMIs. For instance, suppose you have taken a loan of Rs 1 crore. If you have repaid the Rs 15 lakh, your home loan insurance cover will be of Rs 85 lakh. But if you have repaid Rs 50 lakh from your home loan amount, you will get an insurance cover of Rs 50 lakh, in case of any eventuality.
Home loan insurance also provides people with little savings a chance to buy a house early in life as their loan repayment is guaranteed by the insurance company. If you buy this insurance, you have the option to repay your home loan in one single payment or through periodic instalments.
Difference Between Home Insurance and Home Loan Insurance
The following table represents the difference between home insurance and home loan insurance:
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Categories
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Home Insurance
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Home Loan Insurance
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Meaning
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It pays for the loss or damages of the insured in case his/ her house gets damaged in a mishap.
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It pays the remaining home loan amount of the insured in case a mishap makes it impossible for him/ her to pay off the loan.
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Home Loan
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It can be purchased irrespective of whether you have a home loan or not.
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It can be purchased only if you have a home loan.
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Down Payment of the House
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No impact on the down payment.
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It reduces the down payment of your house.
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Premium
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The premiums are lower as compared to home loan insurance.
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The premiums are higher as compared to home insurance.
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In a Nutshell
A home insurance policy protects you against any financial loss arising out of loss or damages caused to your house structure or your personal belongings. A home loan insurance prevents the bank from selling your house in case you are unable to pay your home loan. Both the terms are different from each other but extremely important. Home insurance is a must to avoid a major financial loss and home loan insurance is important if you have an unstable income and are planning to take a home loan.
