One of our biggest financial dreams is to have a home of our own. However, it takes a lot of discipline and planning to make this dream a reality, with individuals having to curb unnecessary expenditures, secure a home loan, and ensure that the loan is paid off in regular EMIs. There is also the added risk of the investor experiencing an unforeseen medical emergency or tragedy that could put the housing investment itself at risk.Read more
Though it is not mandatory to purchase any sort of insurance while securing a home loan, it is prudent to buy term plan for a home loan in the unfortunate demise of the borrower, where their family might face a severe financial crisis and even have to give up the home altogether to pay off the loan. This is why it is important to safeguard the property and family members by investing in term insurance for home loan protection to hedge against such situations.
One should ideally opt for a term plan for home loans, where the sum assured is equal to 10 times the annual income plus the loan amount to be paid. Thus, if the loan amount is say around Rs. 40 lakhs and the annual income is around Rs. 8 lakhs, then the ideal term cover would be close to around Rs. 1.2 crores. Let’s discuss the reasons to choose a term insurance plan for a home loan:
During the time of securing a home loan, the loan provider might insist that you avail of term insurance for home loan protection to safeguard the investment, where the insurance companies will settle any outstanding amount owed to the lender. Since this is not mandatory, you can opt for a term insurance policy instead, which works out to be far more beneficial than a home loan protection plan. Furthermore, you can compare different term plans and purchase one at a premium that is affordable to you. Also, if the policyholder had to opt for an online term plan, they would be able to avail of further discounts.
When it comes to a term plan for a home loan, you can easily shift your current home loan from one lender to another without having to forgo the insurance premium. Furthermore, even after you have completed payment of the loan, you and your loved ones can still avail of the life cover provided by term insurance by paying the premiums, or you can opt out of the same if you prefer.
A major advantage provided by term insurance for home loan protection is that the nominee receives the full amount no matter at what point the claim is made. The amount can then be used to pay off the lender of the home loan, and the remaining amount can be retained by the nominee.
When it comes to a term plan, not only does the amount cover the outstanding home loan – other financial needs of the borrower’s family can also be tended to with the balance amount in the event of the borrower’s untimely death. The sum assured remains constant and it provides more flexibility to the policyholder, as it isn’t fixed solely to the housing loan secured. If one has to instead opt for a home loan protection plan, the insurance offered progressively reduces in amount as the loan gets repaid. Thus, when the time comes to make a claim, the nominee receives the outstanding loan amount. This is why term insurance is a better option.
Sometimes, the bank itself might provide you with a term insurance plan. The insurance premium offered by the bank might be higher in comparison to other standalone insurance providers, as insurance is a third-party product and banks would have to purchase them on behalf of the policyholder. This implies that commissions would also be involved. It is thus advisable that investors compare the price for term insurance offered by banks with the premiums available online.
Protecting your family against the loans/debts is the main purpose of your home loan that is linked with the term insurance plan. Though home loan companies also provide home loan protection policies bundled with the home loan, purchasing a sufficient amount of term plan has various benefits over a home loan protection plan.
Principally, as we have discussed above, the sum assured amount for your term insurance policy for home loans should be equivalent to ten times your annualized income along with the outstanding sum of the home loan.
For example, if your yearly income is Rs. 7 lacs and the outstanding loan is Rs. 30 lacs, then your ideal SA amount should be 1 Crore i.e., 7 lacs X 10 = 70 Lacs + 30 Lacs. Thus, a home loan associated with a term plan with a SA of 1 Crore will take care of all financial requirements of your family in case of your absence.
Home Loan Term Insurance Premium Calculator helps you determine the amount of premium you will incur when you buy a home loan insurance plan. This online tool requires various details related to your home in order to determine the correct estimate of a home loan. While a home loan helps you in the funding of your house, a home loan term insurance plan provides you coverage against unfortunate events that can cause damage to your house.
There are a number of benefits of using a Home Loan Term Insurance Premium Calculator:
Comparison of Interest Rates
Helps in planning future finances
Convenient and Hassle-free
Saves a lot of time
Secure the dreams of your family by owning your home and purchasing a term plan to secure them from the loan liabilities of EMIs as well.
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