Home Loan Protection Plan vs Term Insurance

How Can Term vs HLPP Insurance Help?

A term insurance plan secures your loved ones for the tenure of the home loan. If something unforeseen happens to you in that time, the death benefit from the plan can be used to pay the rest of the amount. On the other hand, home loan insurance protects your loved ones from unfortunate events by settling the unpaid home loan. 

To understand the concept in detail, let’s discuss two types of insurance: term insurance and HLPP insurance, and their benefits, which will help you in making a wise decision about staying financially secure.

What is Home Loan Insurance? 

Home Loan Insurance(HLI) is also called Home Loan Protection Plan (HLPP). This is a plan introduced by almost every financial/lending institution in which the insurance company pays the unsettled balance amount of their home loan to the lender or bank if the debtor dies because of unexpected circumstances. In this, the term of the plan and the loan is generally the same. So, by buying a home loan insurance plan, borrowers make sure that their loved ones will not have to pay the home loan because of non-payment of the balance of the loan after their demise. 

What is Term Insurance Plan? 

Term insurance is a pure life insurance product that offers financial stability and protection to the policyholder for a specific time period. In the case of the policyholder’s death during the policy term, the nominee/beneficiary receives a death payout as defined under the chosen term plan. 

For instance: The premium amount for Rs. 1 Crore Term cover could be as minimum as Rs. 500 per month. This fixed amount of premium can be paid once or at regular intervals of time for the entire policy tenure or for a limited time. Premiums vary based on the premium payment type opted by the policy buyer. 

Note: Now that you know that what is term insurance plan you can easily buy a term plan for your loved ones.

Comparing HLPP Vs Term Insurance

The two protection policies that can secure the borrower from the risk of non-repayment are beneficial for both the borrower and the lender. Let’s discuss some of the important differences associated with home loan insurance vs term insurance plans:  

1. Premiums

   Premium amounts are paid in a lump sum form for a home loan insurance plan. This 1-time payment makes the rates of premium higher than other plans. Also, the premium amount for HLPP insurance is added to the amount of the home loan. Premiums of a term plan are lesser than home loan insurance. A term insurance calculator is used to calculate the premiums and it is paid yearly, bi-yearly, quarterly, or on a monthly basis. So, a term plan is much more economical than home loan insurance.

   Note: It is suggested to calculate the term plan premium on the term insurance calculator online tool by Policybazaar before buying.

2. Coverage of plan 

   The term plan provides financial coverage for a fixed period of a lifetime and if the insured passes away within the fixed time, then the death benefit is paid to the beneficiaries in a lump sum form with which your loved ones can repay the home loans. After the policyholder’s death, the term plan can settle any type of unpaid debt, thus securing the loved ones from the unexpected financial stress of paying the loan back. This decreases the risk of experiencing bad debts as the term plan will discharge the unpaid liabilities. 

   On the other hand, the home loan insurance covers the debtor for the duration of repaying the loan. This insurance expires when the unpaid loan amount has been paid. Similarly, the coverage amount reduced as the loan amount gets repaid. In case the debtor passes away within this tenure, then the loved ones can claim the loan insurance to pay off the unpaid amount of loan. 

3. Tax Benefits

   According to section 80C of ITA, a tax-payer can file a claim of deduction of up to 1.5 Lacs from the taxable salary. A policyholder availing term plan is eligible for this tax deduction. Home loan insurance provides the same tax savings benefit u/s 80C as the home loan premium amount is added to the home loan. This majorly depends on the policy term and the home loan to assess the term insurance tax benefits tenure.

4. Rider 

   Both protection plans, term insurance, and HLPP insurance, have rider benefits that cover specific conditions such as accidental deaths, critical illness, and job loss. These term insurance riders increase the cover of base insurance plans. So, the home loan insurance plans with these riders typically have a higher price than the base term plans.

What is the Use of an HLPP Insurance Calculator?

An HLPP calculator is a practical tool for anyone planning to take a home loan or already servicing one. Instead of making assumptions about insurance costs, it helps you get a clearer picture of what protecting your home loan may actually involve. This tool makes it easier to plan both your loan and your long-term finances.

• Helps You Estimate the Premium in Advance: By entering a few basic details such as loan amount, tenure, and age, the HLPP calculator gives you an estimated premium. This allows you to know the likely cost before you commit to a policy.

• Makes Financial Planning More Predictable: Since you understand the insurance amount in advance, it becomes easy to plan other things related to taking home loans. You can account for the premium along with EMIs, household expenses, and savings without surprises later.

• Supports Better Decision-Making: The calculator enables you to vary parameters such as tenure or coverage to understand how the premiums will be affected. This will help you make a better decision about how much cover you want.

• Useful for Comparing Options: You can use the HLPP calculator to evaluate options based on loan values and policy terms. This is helpful as you will be able to determine how such options will affect your premiums.

• Saves Time and Reduces Confusion: Instead of relying on rough estimates or multiple discussions, the calculator gives instant results. This saves time and simplifies the process, especially for first-time home loan borrowers.

Wrapping It Up!

After discussing all the pointers discussed above, it is clear that the decision of choosing a specific plan solely depends on the financial needs of an individual. However, various experts suggest term insurance over a home loan protection plan, as the previous one offers large cover, maximum flexibility, and helps the family of the borrower to face financial liabilities in the future.

Note: Check out the best term insurance plan in India and choose one that suits your requirements.

Note: You should also check the benefits of term life insurance if you are planning to purchase the term insurance plan.

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