Securing Debt With Mortgage Insurance

Let us see how you can secure debts with mortgage insurance in India:

What is the Need for Home Loan Protection Insurance?

Everyone who has availed of a home loan should have home loan protection insurance 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.

Types of Insurance you can Buy to Secure Home Loans

There are two types of insurance you can buy to secure yourself and your family against the 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.

How Can Life Insurance Cover Home Loan Insurance Risks?

Life 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 term plan for a 2 crore life cover at premiums starting from just Rs. 503 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 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: With life insurance, you can claim tax benefits as per the prevailing tax laws under sections 80C and 10(10D) of the Income Tax Act, 1961.

Is Life Insurance Better Than Home Loan Protection Insurance?

The choice between buying life insurance or a home loan protection plan depends on a person’s personal preference and needs. But to help make the decision-making process easier, we have created a list of ways in which life insurance and home loan insurance differ from each other.

• Affordability: Life insurance plans are slightly more affordable for the same sum assured than home loan protection plans.

• 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. Whereas, 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.

Final Thoughts

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.

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