Home Loan Insurance in India

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:

1. 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.
2. 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.
3. 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:

1. 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.

2. 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.

3. 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.

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:

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:

FAQs About Home Loan Insurance