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Mortgage insurance, also known as home loan protection insurance, is designed for people with home loans. It ensures that in case of the policyholder’s death, their family won’t have to bear the burden of repaying the remaining loan. With this insurance, you can buy your dream home while securing your loved ones from financial stress in your absence.
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Mortgage life insurance protects a mortgage titleholder or lender if the borrower fails to make payments, passes away, or cannot meet the mortgage’s contractual obligations. Before choosing the best term insurance plans for home loans in India, you should understand the importance of term insurance for mortgage protection.
Let us see how you can secure debts with mortgage insurance in India:
Everyone who has availed of a home loan should have a term insurance for home loan protection in place to secure their loved ones against the liability of debt repayment in the event of the policyholder’s unfortunate death. This provides you and your loved ones with financial security and peace of mind, knowing that the debt repayment will be taken care of in the absence of the main income earner.
Let us see the types of insurance you can buy to secure your loved ones.
Term Plans
There are two types of insurance you can buy to secure yourself and your family against debts in your absence.
Life Insurance Plans: This is an insurance plan that protects the life of the life assured against a variety of uncertainties for the entire policy term. In case of the policyholder’s death during the policy term, the nominee will receive the death benefit amount, which they can use to take care of their financial obligations and pay off any remaining loans.
Home Loan Insurance: Home loan protection insurance protects the nominees against outstanding debts in case something happens to the loan borrower. With this insurance, the insurer will pay off the remaining loan amount in case of the policyholder’s death during the policy term.
Life insurance plans like term insurance can help you secure yourself and your family against home loan risks in the following ways:
Affordable Premiums: A life insurance plan can cover home loan protection risks at highly affordable premiums for a long policy term. For example, you can buy the best term insurance plan for 2 crore life cover at premiums starting from just Rs. 699 per month.
Fixed Cover Amount: The cover amount stays constant throughout the policy term in life insurance plans. Since the cover amount remains fixed in life insurance plans, it is the preferred option for most policyholders.
Protection for Family: The payout from life insurance in case of your death can help financially stabilise your family in their time of need. Without life insurance, your family may be burdened with home loan repayment while suffering through the grief of losing a loved one.
Security of Assets: You can secure your assets with different types of life insurance, as in case of your unfortunate death, your family can use the payout to pay off the home loan. Alternatively, if you do not have a life insurance plan in place, your family may have to sell your assets to pay off the loan amount.
Peace of Mind: Life insurance can provide you with the peace of mind that your nominee will receive the benefit amount in case of your untimely death and use the amount to pay off the remaining loan money.
Tax Benefits: You can claim life insurance tax benefits as per the prevailing tax laws under sections 80C and 10(10D) of the Income Tax Act, 1961.
Home loan protection insurance (also known as Mortgage Insurance) is designed to pay off or reduce your outstanding home loan balance in the event of your death or serious disability during the loan term. It acts as a safety net, ensuring that your family isn’t burdened with repaying the home loan if something happens to you. Here’s how it typically works:
Coverage: The insurance against home loan covers the outstanding home loan amount. As the loan reduces over time, the coverage decreases accordingly.
Payout: If the policyholder passes away, the insurance company pays the outstanding loan directly to the lender, relieving the family from financial stress.
Premium Payment: You can pay a one-time premium at the start of the insurance against home loan or opt for regular payments, depending on your financial preference. You can use a mortgage life insurance premium calculator to get the estimate premiums applicable for your profile.
No Additional Burden: Since the payout goes directly to the bank, your family doesn’t have to worry about dealing with the home loan debt.
Optional Riders: Many home loan protection insurance plans offer riders like critical illness or disability coverage to further enhance the home loan protection plan.
In India, there isn’t a formal legal clause titled “mortgage protection clause”, but the concept is widely applied through insurance mechanisms that protect home loans in the event of a borrower’s death.
Below are the common ways a mortgage protection clause works in the Indian context:
A Home Loan Protection Plan is a type of term insurance linked to your home loan. With this, the Mortgage Protection Clause ensures your loan gets repaid if something happens to you.
Insurance cover equals your loan amount.
The sum assured reduces every year to match your outstanding loan.
In case of death, the insurer directly pays the bank, so your family isn’t burdened.
Usually offered as a single premium policy, bundled with your home loan.
If you don’t want to buy HLPP, you can assign your regular term insurance to the bank.
You purchase a term plan with sufficient cover.
You assign the bank as the first beneficiary.
On death, the insurer clears the loan first, and any remaining amount goes to your nominee.
This approach to the Mortgage Protection Clause gives you more flexibility and better control over your insurance.
RBI Guidelines: Borrowers cannot be forced to buy insurance from a specific insurer or bank partner.
IRDAI Guidelines: Insurers and banks must ensure transparency in selling loan protection plans, including cost and terms.
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The choice between buying life insurance or a home loan protection plan depends on a person’s personal preference and needs. Let us take a look at how the home loan protection insurance or the HLPP vs term insurance differ from each other.
Affordability: Life insurance plans are slightly more affordable for the same sum assured than home loan protection plans. The low mortgage insurance cost allows you to ensure protection against home loan debts in your absence.
Comparability: Life insurance plans can be compared online and purchased from an insurer of your choice. You might not get the option of comparing with home loan protection insurance as banks usually partner with an insurer, and you can purchase only the specific plan offered.
Accrued Interests: Life insurance premiums can be paid separately and do not accrue any interest, whereas home loan insurance premiums are included in the amount paid for the total loan amount, which increases the EMI.
Maturity Benefits: Once you have repaid all the premiums for the home loan insurance and the loan is paid off, you will be eligible to receive no maturity amount. With a life insurance plan, you can use the applicable maturity amount to pay off the loan and use the rest to fulfil your financial goals.
Cover Amount: The cover amount in home loan insurance decreases as you keep paying the principal amount. In life insurance, the cover amount remains the same and can be used to pay off the remaining loan by your family members.
Surrender Value: As against a life policy, in the event of the death of the policyholder of a home loan protection insurance, the insurer settles the outstanding loan with the bank on behalf of the policyholder. Any excess funds after settling the loan are provided to the nominee of the borrower.
Portability: Home loan protection plans cannot be ported to other insurers as they are purchased under the master policy between the lender and the insurance company.
Single v/s Joint cover: However, in contrast to a life insurance plan, a single life cover can cover all the borrowers under a joint loan. You do not need to purchase a separate life insurance plan for each borrower.
Not only that, the nominee in life insurance can use the amount to pay off the loan debts and use the remaining amount to take care of their financial needs like paying rent and paying child’s fees. Whereas, in home loan insurance, the insurer will pay the entire sum assured to settle the debt and nothing more. Life insurance for home loans comes with a long policy term and doesn’t require renewal which makes it hassle-free compared to the home loan insurance offered by general insurance companies, which have to be renewed annually.
hey serve different purposes. Here’s a comparison of term insurance vs home loan insurance plans:
| Feature | Home Loan Protection Insurance | Term Insurance |
| Coverage Purpose | Covers only the outstanding home loan balance. | Provides a lump-sum payment that can be used for any purpose, including home loan repayment. |
| Coverage Amount | Decreases as the home loan balance reduces over time. | Fixed sum assured throughout the policy term, providing greater flexibility. |
| Beneficiary | Typically, the payout goes directly to the bank/lender to clear the outstanding loan. | The payout goes to the nominee (your family), who can use the money as needed. |
| Premium Payment | Can be paid as a lump sum or in regular installments. | Premiums are generally lower and paid on a regular basis (monthly, quarterly, annually). |
| Flexibility | Limited – designed solely to cover the loan, not other financial needs. | High flexibility – can cover any financial obligations, such as loans, education, or living expenses. |
| Riders and Add-Ons | Optional riders like critical illness or disability are often available. | Term insurance riders provide broader financial protection. |
| Best For | People looking for specific protection for their home loan balance. | Individuals who want a comprehensive plan to cover all financial obligations. |
Home loan insurance is not necessary for everyone, but there are certain situations where it may be highly beneficial. Here’s a quick overview of who should consider it:
| Profile | Why You Should Consider Home Loan Insurance |
| First-Time Homebuyers | New homebuyers with large home loans can benefit from this insurance against home loan, as it ensures the loan will be paid off even in case of unexpected events. |
| Individuals with Limited Savings | If you don’t have significant savings, home loan insurance offers peace of mind, knowing your family won’t struggle with the loan if you pass away. |
| Primary Income Earners | If your family depends solely on your income to cover the mortgage, this insurance provides protection against the loss of that income. |
| Homebuyers with Long Loan Tenures | If you have a long loan tenure, home loan insurance ensures that the outstanding debt doesn’t become a burden on your family over the years. |
| Homebuyers Without Term Insurance | If you don’t have an existing term insurance policy, home loan protection insurance is a basic way to secure your home loan. However, term insurance is often a better alternative. |
You can either buy life insurance or a home loan protection plan to secure yourself and your family from the debt that might befall them in your absence. It is important to have at least one of the two plans to secure the financial stability of your family in case you are unable to pay the loan off. You can compare the benefits and features of both types of insurance and buy the one that suits your requirements the best.
˜Top 5 plans based on annualized premium for bookings made on https://www.policybazaar.com in the first 6 months of FY 24-25.
Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in
+Rs. 487/month (Rs.16/day) is starting price for a 1 crore term life insurance for an 18 year-old male, non-smoker, with no pre-existing diseases, cover upto 38 years of age.
Prices offered by the insurer are as per the approved insurance plans | #All savings and online discounts are provided by insurers as per IRDAI approved insurance plans | Standard Terms and Conditions Apply | **Tax Benefits are subject to changes in tax laws.| Policybazaar Insurance Brokers Private Limited
We will respond in the first instance within 30 minutes of the customers contacting us. 30-minute claim support service is for the purpose of giving reasonable assistance to the policyholder in pursuance of the claim. Settlement of claim (including cashless claim) is the responsibility of the insurer as per policy terms and conditions. The 30-minute claim support is subject to our operations not being impacted by a system failure or force majeure event or for reasons beyond our control. For further details, 24x7 Claims Support Helpline can be reached out at 1800-258-5881
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+Rs. 820/month is starting price for a 2 crore term life insurance for an (NRI) 18 year-old male, non-smoker, with no pre-existing diseases, cover upto 38 years of age.
+Rs. 1,443/month is starting price for a 5 crore term life insurance for an (NRI) 18 year-old male, non-smoker, with no pre-existing diseases, cover upto 38 years of age.
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