How Term Insurance Plans Cover Home Loan Risks?

Owning a house is one of the goals that everyone set for themselves. Most of us take loans and often use our life’s savings and even future incomes to reach this milestone of life. However, this goal can crash down if you are not able to repay the home loans. The risk of non-payment of home loans mainly occurs because of two reasons: The demise of the borrower, and the loss in earning capacity of the borrower due to a disability or critical illness. In case of non-payment of loans, one may have to leave their asset or property as a mortgage to the lender. 

Read more
Get ₹1 Cr. Life Cover at just
Term Insurance plans
Online discount
upto 10%#
Guaranteed
Claim Support
Policybazaar is
Certified platinum Partner for
Insurer
Claim Settled
98.7%
99.4%
98.5%
99%
98.2%
98.6%
98.82%
96.9%
98.08%
99.2%

#All savings and online discounts are provided by insurers as per IRDAI approved insurance plans | Standard Terms and Conditions Apply

Get ₹1 Cr. Life Cover at just
+91
View plans
Please wait. We Are Processing..
Get Updates on WhatsApp
By clicking on "View plans" you agree to our Privacy Policy and Terms of use
We are rated
rating
58.9 million
Registered Consumers
51
Insurance
Partners
26.4 million
Policies
Sold

How Term Insurance Plans Help Cover Home Loan Risks?

A term insurance plan helps in solving all the above-mentioned unforeseen uncertainties. It is one of the cost-effective options that provide a large life cover at relatively low premium rates. In case of the borrower’s death, the dependents or family members are secured with term plan coverage which they can further use to repay the home loan.

Increase Benefits

Make sure that the policy term is greater than or at least equivalent to the loan term. The best term plan is a combination of base life cover and additional benefits through riders available on additional premium payments. Suffering from life-threatening diseases like cancer, organ failure, stroke, or accidental dismemberment can result in a loss of the borrower’s earning capacity. In such cases, add-ons such as accidental benefits or critical illness riders protect you by providing lump sum and unique benefits that help in repaying a loan.

What are Home Loan Risks of Default?

The homeowner's responsibility does not end with buying a house. In fact, it starts from purchasing and ends only after the total home loan is paid. For example: If you buy a house for Rs. 40 Lakhs with a 20 years’ term at a 9% rate of interest, you will have to pay a monthly EMI of Rs. 36,000. You have the option to increase the term to up to 30 years to decrease the monthly EMI but then the loan will become costlier. This means you will have to pay more than what you availed from the bank.

Home loans have a high risk of default mainly because of the following reasons:

  • Critical Illness

  • Permanent Disability or death of the borrower

  • Loss of job

In such cases, a home loan-linked term insurance plan secures the surviving family members from the debts of heavy home loans. A term insurance plan may not provide you protection in case of a normal loss of a job, but it can surely help you in case you lose your job because of any major accident or critical illness. However, you will be required to purchase riders to protect yourself from such uncertainties. In case of the borrower’s death, family members can use the death payout received from the term plan to pay off their home loan and ease the financial stress of the family.

Five things to know before buying Term Plan Five things to know before buying Term Plan

Why Buy Term Insurance If you have a Home Loan?

A term insurance plan acts as a safety net for your loved ones when you are not around. This pure protection plan provides the much-required amount to meet the requirements in the unforeseen event of the life assured’s death. A term plan ensures that your loved ones are financially protected to pay off the debt. Following are the main benefits of purchasing term insurance for a home loan:

  1. High Life cover amount

    A term plan can provide a high cover at the best possible premium rates based on your needs and financial risk portfolio. The total life cover amount should be at least 10X the annual income over and above the house loan unpaid amount.

  2. Low premium rates

    The premium amount for term insurance plans is lower as compared to other plans.

  3. Flexibility

    Apart from maximum coverage and affordable premium, a term plan allows you to update your plan with the changing financial requirements of your life. It helps you to change the coverage, premium, or term as per your changing needs.

  4. Additional Benefits

    The term riders are add-ons that can be attached or added to your base plan to enhance the coverage of your policy. The riders like terminal illness and partial/permanent disability can be availed at a low amount of additional premium.

  5. Tax Benefits

    You can get tax benefits on the premium amount as per the prevailing laws of the Income-tax act, 1961.

Why Buy Term Life Insurance from Policybazaar Why Buy Term Life Insurance from Policybazaar

How much Term Insurance Plan is Required if you have a Home Loan?

Securing your family members against the debt is the primary goal of your home loan-linked term insurance plan. Though home loan companies also provide home loan protection plans with a term plan, purchasing a sufficient amount of term plans has various benefits over a home loan protection plan.

Preferably, the life cover for your term plan opted for a home loan should be equivalent to 10X your yearly income + the amount of unpaid home loan.

For instance, if your yearly income is Rs. 7 Lakhs and the unpaid amount of your home loan is Rs. 30 Lakhs, then your sum assured amount should be 1 crore (7 Lakh X 10 = 70 Lakh + 30 Lakh). So, this amount will take care of all your family’s financial requirements in your absence.

What To Choose? Home Loan Protection Plan or Home Loan Linked Term Insurance Plan

You can select to purchase an HLPP i.e., Home Loan Protection Plan when you take a home loan from any financial institute. Though, it is not important that you purchase HLPP while availing a home loan. A term insurance policy for a home loan is the right choice and a good option for the one who is buying a home because of the below reasons:

  • The Premium amount is higher as compared to the home loan term plan. In the home loan term plan, the premium is paid in annual, quarterly, or monthly installments, whereas in HLPP, a one-time premium should be paid.

  • In the case of HLPP, the coverage decreases in direct proportion to the unpaid loan. So, as the unpaid loan is paid off, the coverage decreases until it becomes zero after the loan is fully paid off.

  • The death benefit stays the same during the entire policy tenure in a home loan term plan.

  • In the Home Loan Protection plan, you have no option to increase the cover if you increase the term of a home loan through a balance transfer or refinancing to another financial organization. There are no such difficulties with a term plan.

Affordable Term Life Insurance Affordable Term Life Insurance

Wrapping It Up!

The dream of buying your own home has become possible with the help of a home loan. But it is important to consider the risks related to home loans and how a protection policy such as a term plan can help you. Purchasing a term insurance plan to protect your family against future uncertainties is a smart choice that you can make right now.

Different types of Plans


Term insurance articles

Recent Articles
Popular Articles
Best Term Life Insurance in USA

01 Feb 2023

A term life insurance in USA can secure your family against the
Read more
Tata AIA Term Insurance Login

26 Dec 2022

Tata AIA term insurance login portal offers the company’s
Read more
Why NRIs in UAE Should Buy Term Insurance Plans from India?

08 Dec 2022

Term life insurance plan secures the financial future of your
Read more
Best Term Life Insurance Plans in Singapore

07 Dec 2022

An NRI living in Singapore can easily buy the best term life
Read more
Bima Sugam

29 Nov 2022

Bima Sugam is an online marketplace that will offer its services
Read more
LIC Term Insurance 1 Crore
LIC of India offers various plans to help you secure the financial future of your loved ones. In order to make
Read more
What Medical Tests are Required for Term Insurance?
Term insurance offers a sum assured to the beneficiary of the policyholder upon their death that can help them
Read more
Term Insurance: Tax Benefits under Section 80D
Term Insurance provides financial security and protection to your family in case of your unexpected death within
Read more
2 Crore Term Insurance Plan
The pandemic has surely generated a global panic and emphasised the importance of financial planning that would
Read more
Types of Deaths Covered and Not Covered by Term Insurance
A term insurance plan is the best way to ensure the financial well-being of your family members in case of any
Read more

top
View Plans
Close
Download the Policybazaar app
to manage all your insurance needs.
INSTALL