Home Loan Insurance in India
Home loan insurance is a crucial financial backup that provides valuable protection for borrowers and their families.
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What is Home Loan Insurance?
Home loan insurance, also known as a Home Loan Protection Plan (HLPP) or mortgage loan insurance, is a specialised insurance policy covers your outstanding home loan amount in case of the untimely demise or other critical events like disability or terminal illness (as per policy terms). This insurance ensures that the remaining balance of the home loan is paid off if something happens to the borrower, such as death or severe disability.
Key Points to Understand in Home Loan Insurance
Here are the purpose and coverage duration explained below, which act as a key pointer in understanding home loan insurance:
- Purpose: The primary objective of home loan insurance is to cover the outstanding balance of the loan amount. If the borrower passes away or becomes incapacitated, this policy will settle the remaining loan amount with the lender or bank.
- Coverage Period: Typically, the policy period matches the home loan term. So, if you have a 20-year loan, the insurance coverage will also be for 20 years.
Significance of Home Loan Insurance
The following reasons explain the importance of home loan insurance policy for homeowners in India:
- Protects Family from Loan Burden: One of the foremost reasons to consider home loan insurance is the protection it provides to the family. In the unfortunate event of the policyholder's death, the policy ensures that the family is not responsible for repaying the remaining loan. This can prevent them from facing financial hardship or losing their home during their most challenging time.
- Safeguards Lenders: Financial institutions like banks, NBFCs, and housing finance companies prefer minimising non-repayment risk. Home loan insurance helps protect the lender's investment by ensuring that the outstanding loan balance is covered, thus reducing the risk of default.
- Adds Financial Stability: Without home loan insurance, your family may struggle to meet the monthly payments, especially if you were the primary breadwinner. The home loan insurance policy minimises this risk by ensuring the loan is paid off, thus safeguarding your family's financial stability.
Key Features of Home Loan Protection Insurance
The below explained pointers are the various characteristics of home loan insurance:
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Coverage Duration
The insurance coverage usually matches the home loan term.
- Lump Sum Payment: The insurance premium can be paid in one go, covering the entire policy period upfront.
- EMI Mode: Alternatively, the premium can be added to the home loan amount and paid off in monthly installments along with the loan EMIs. This makes it more manageable if the policyholder prefers not to make a one-time payment.
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Coverage for Joint Borrowers
The insurance covers all co-borrowers if multiple individuals have co-borrowed the home loan (e.g., family members such as spouse, daughter, son, mother, father, etc.). This means that if any co-borrower passes away, the insurance will cover their share of the outstanding loan.
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Riders and Add-Ons
- Basic Coverage: At its core, home loan insurance covers death.
- Additional Riders: You can opt for riders to enhance the coverage. These can include protection against critical illnesses (such as heart attack or cancer) and permanent disability causing unemployment. Some plans also offer coverage for temporary loss of income, covering up to six months of EMI payments.
Key Benefits of Home Loan Insurance
A home loan insurance policy offers a financial safety for your family and co-borrowers. Here are the key benefits of it:
- Comprehensive Protection: In case of the policyholder’s death or disability, the outstanding loan is covered, helping the family members to cope the financial loss and repayment stress.
- Affordable & One-Time Premium Options: During the initiation, pay once and stay protected for the entire loan duration.
- Joint Borrower Coverage: This policy is ideal for loans taken with a spouse or parent as both individuals can be covered under a single policy.
- Tax Benefits: The dedicated premium amount is eligible for deductions under Section 80C or 80D of the Income Tax Act.
*Note: Tax benefits are subject to change as per prevailing laws.
Credit Protect Coverage and Benefits
Credit protection cover is a type of home loan insurance that is an outstanding loan protection policy offering the following coverage and benefits to the insured:
| Benefit |
Description |
| Base Sum Assured |
Determined based on your home loan amount; this is the coverage amount provided under the policy. |
| Death Benefit |
- Payment: On the insured’s death, the Effective Sum Assured is paid to the nominee to clear the loan.
- Grace Period: If death occurs during the grace period after a missed premium, the policy remains valid but unpaid premiums are deducted from the benefit. |
| Payor Accelerator Benefit |
- Terminal Illness: Lump sum is paid on diagnosis of terminal illness to support immediate expenses.
- Policy Continuation: The policy remains active, and premium payments continue after payout. |
| Payout Options |
The nominee receives the entire death benefit as a lump sum, ideal for immediate loan clearance. |
| Staggered Benefit |
Option to receive death benefit in installments (monthly, quarterly, semi-annually, or annually). Future installments can also be availed as a discounted lump sum. |
| Maturity and Surrender |
- No Maturity Benefit: No payout if the policyholder survives the policy term.
- Surrender Value:
▪ Regular Pay: No surrender value.
▪ Limited Pay: Surrender value available if at least 2 years of premiums are paid, based on a surrender factor.
|
Policy Flexibility
Here are the other vital features under credit protection cover explained below:
- Free-Look Period: You can cancel the policy within a few days (as defined by the insurer) for a refund (minus applicable charges).
- Grace Period: It varies based on premium payment frequency.
- Revival Option: The policy can often be revived within a specified period with health declaration and interest.
Exclusions
- Suicide Clause: If the insured commits suicide within certain time period of policy issuance, the nominee will receive at least some percentage of premiums paid or the surrender value, whichever is higher.
Tax and Regulatory Norms Under Credit Protection Cover
- Tax Benefits: The premium amount is deductible under Section 80C. However, consult a tax advisor for a better understanding, as tax laws may change.
- Assignment and Nomination: The assignment and nominee selection is available or allowed as per the policy regulations. Hence, read the policy wordings to get information related to it.
- Prohibition of Rebates: Rebates or discounts on premiums are not allowed, and violations lead to penalties.
Home Loan Calculator
A home loan calculator is a smart online tool that helps you estimate your monthly EMI based on loan amount, tenure, and interest rate. It enables you to plan your finances better by comparing different loan scenarios, adjusting variables, and understanding the total cost of the loan over time. This tool is especially useful before applying for a home loan or purchasing insurance, as it gives clarity on affordability and helps avoid over-borrowing. Using a calculator ensures your financial decisions are informed and aligned with your repayment capacity.
Difference Between Home Loan Insurance & Home Insurance
The table below highlights the difference between home loan insurance & home insurance policy:
| Points of Basis |
Home Loan Insurance |
Home Insurance |
| Meaning |
This means paying the policyholder's remaining or outstanding loan amount if an unforeseen circumstance does not allow them to repay the loan. |
The means paying the financial loss or damage caused to the insured home structure or its contents due to several unforeseen risks. |
| Coverage |
Helps in paying the outstanding loan amount in case of any casualty to the policyholder. |
Helps in securing the insured home structure and the household items from various risks defined in the policy wordings. |
| Down Payment |
It minimises the down payment (EMIs) on your house. |
No impact. |
| Purchase Process |
You can only buy it if you already have a home insurance policy. |
It can be purchased regardless of whether the individual has a home loan. |
FAQs About Home Loan Insurance
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Ans: A home loan insurance policy, also known as a Home Loan Protection Plan (HLPP), covers the outstanding loan amount with the financer in case of the borrower's sudden demise or due to terminal illness (as mentioned in the policy documents).
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Ans: If the borrower is the only family breadwinner, they must buy a home loan insurance policy. It pays the outstanding loan amount if the borrower dies untimely.
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Ans: The premium paid for home loan insurance is non-refundable. However, some policies in India might offer a premium refund. Therefore, review the policy's terms and conditions to understand the refund policy.
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Ans: Yes, home loan insurance pays the outstanding loan amount in case of the policyholder's death.
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Ans: In India, mortgage loan insurance is not compulsory. However, some banks or financial institutions offer it along with the home loan.
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Can I cancel my home loan insurance if I repay the loan early?
Yes, in many cases, an insurer allows early termination of the policy or may offer partial refunds on the unutilized premium. However, you need to confirm with this with insurer before buying a policy.
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What happens if I transfer my loan to another bank?
If your current insurer allows, you can port your existing policy or opt for new one with your new lender.
Generally, the insurance remains valid as long as the premium is paid. However, it's important to check your insurer’s terms and conditions.
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Do I need medical tests to buy a home loan insurance plan?
It depends upon the insurer. Some of them offers coverage without any medical test for borrowers with certain age limit and loan amount. However, for higher loan amount, medical underwriting may be required.
Written By: PolicyBazaar - Updated: 21 August 2025
