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Buying a home is one of the biggest financial commitments you'll make in your lifetime, especially in India, where home loans are often the key to homeownership. But while securing a mortgage is a big step, protecting it is equally important. Life is unpredictable, and unforeseen events like death can leave your family with the burden of repaying the loan. This is where life insurance can play a crucial role. In this article, we explore whether you need life insurance for your mortgage, how it works, and if it's worth the investment for Indian borrowers.
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Life insurance can provide critical protection for both you and your family when you take out a mortgage. Here’s a detailed look at why life insurance is worth buying for individuals with home loans:
Protects Your Family from Financial Burden: If you, the primary earner, pass away during the loan tenure, your family could be left struggling to make mortgage payments. Life insurance ensures that your family is not burdened with loan debt repayment or facing the threat of losing the home. The payout from the policy can clear the remaining loan balance, allowing your family to retain ownership of the house.
Ensures Homeownership Stability: The primary goal of taking a home loan is to achieve homeownership. However, without protection, an unforeseen event like death could cause your family to lose that dream. Life insurance provides death benefits, ensuring your family can continue living in the home without the fear of foreclosure due to non-payment of EMIs.
Affordable Protection for Long-Term Loans: Home loans in India usually have long tenures, ranging from 15 to 30 years. Term insurance, being an affordable form of life insurance, can provide high coverage at low premiums, making it a cost-effective way to protect a large loan for an extended period.
Customizable Coverage: You can choose a life insurance policy that exactly matches your loan amount and policy term. This ensures that your coverage remains relevant for the entire loan period, giving you the flexibility to align the insurance with your financial commitments.
Peace of Mind: Knowing that your home loan is covered gives you peace of mind. You don’t have to worry about what might happen to your home and your family’s security if something happens to you. This assurance allows you to focus on other aspects of life without the constant worry of financial instability.
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Whether mortgage life insurance is worth it depends on your individual circumstances:
Consider Your Family’s Financial Needs: If your family depends on your income to pay the mortgage, life insurance can be invaluable. It ensures that they won’t lose their home if you pass away unexpectedly.
Evaluate the Coverage Needed: Calculate the amount of coverage needed to repay your mortgage in full. Ensure that the life insurance policy covers this amount to protect your family adequately.
Compare Costs and Benefits: Compare the premiums of different life insurance policies with the coverage they offer. Term insurance typically offers high coverage at lower premiums compared to other types of insurance, making it a cost-effective choice for mortgage protection.
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Here is a list of factors you need to consider before buying life insurance to protect your family from home loans:
Loan Amount and Duration: The insurance coverage should match the size of your home loan. If you’ve taken a ₹50 lakh loan, make sure your policy provides at least that amount in coverage. Similarly, the tenure of the insurance policy should match your loan tenure. For example, if your home loan is for 20 years, choose a policy with at least 20 years of coverage to ensure that your loan is protected throughout its duration.
Affordability of Premiums: Term insurance plans are the most affordable type of life insurance plan, providing high coverage at low cost. Compare different policies and ensure that the premium amount is manageable for you over the long term. Remember that if you stop paying premiums, the policy may lapse, leaving your loan unprotected.
Additional Financial Cover: Evaluate if your existing life insurance policies are sufficient to cover both your home loan and your family’s other financial needs. For instance, if you already have a term insurance policy, check if the sum assured is enough to cover both the outstanding mortgage and other expenses, such as children’s education or daily living costs. If not, consider increasing your coverage or opting for a separate policy for the home loan.
Tax Benefits: You can claim life insurance tax benefits under Section 80C of the Income Tax Act. Additionally, the death benefit is tax-exempt under Section 10(10D). This provides a financial advantage to borrowers while ensuring mortgage protection.
Insurer’s Reputation: Choose a reliable insurance provider with a good claims settlement ratio. This ensures that in case of an unfortunate event, the insurer will promptly and efficiently process the claim, providing the needed funds to your family when they need it most.
Buying life insurance to secure your family against outstanding home loans provides you with the necessary peace of mind. It ensures that your loved ones can keep the home you’ve worked hard for, even if you’re no longer around to support them financially. Whether you opt for term insurance or mortgage protection insurance, having this coverage can offer peace of mind and security. Assess your individual needs, evaluate the options available, and make an informed decision to safeguard your family’s home and future.
†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
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