What Is Home Loan Insurance and What Are Its Benefits?

What Is Home Loan Insurance?

Home Loan Insurance is a protection plan designed to cover your outstanding home loan liability if something unfortunate happens to you during the loan tenure.

Meaning of home loan insurance in simple terms, if the borrower passes away or becomes permanently disabled, the insurance company repays the remaining loan amount directly to the bank or lender. This ensures that the borrower's family does not have to bear the financial burden of EMIs or risk losing the house. 

The policy tenure usually matches the home loan tenure, whether 15, 20, or 30 years, providing continuous financial protection throughout the repayment period. Some borrowers also combine this with a life insurance policy to offer wider financial security for their family beyond just the home loan. While most lenders offer it when taking a home loan, it is not mandatory. The RBI and IRDAI have clarified that purchasing home loan insurance is voluntary.

What is the Importance of Home Loan Insurance Cover? 

A home loan is often a long-term commitment spanning decades. If something happens to the borrower, the unpaid loan can quickly become a financial burden for their family. Home loan insurance protects against this risk in several ways:

• Protects Your Family's Home
  In case of the borrower's death or disability, the insurer pays off the outstanding loan amount. This ensures your loved ones don't lose their home or struggle with EMIs during an already difficult time.

• Reduces the Lender's Risk
  It guarantees loan repayment even if the borrower cannot continue payments, helping the bank or housing finance company recover its dues without delay.

• Maintains Financial Stability
  By covering the loan liability, the plan prevents your family's savings or other assets from being used to clear the debt, safeguarding their financial continuity.

• Offers Peace of Mind
  Knowing your home loan is insured gives you confidence that your family's most significant asset, the home, will remain secure, no matter what life brings.

What are the Key Features of Home Loan Insurance?

Home loan insurance is a financial shield for borrowers, ensuring the home remains secure even if unforeseen events affect the borrower's ability to repay. Here are the main features of home loan protection insurance that make it worth considering:

• Payment in lump sum
  The premium amount for the home loan insurance cover can be paid all at one time. Buyers can also combine the premium payment with the complete loan amount and pay it in monthly installments. 

• Joint Borrower Protection
  If the home loan is taken jointly, the insurance can cover all co-borrowers. In case one of them faces death or disability, the coverage ensures the other borrowers aren’t left with the full repayment burden.

• Customisable Add-ons
  You can enhance your coverage with riders that cover job loss, accidental disability, or EMI protection for a few months, creating a plan that fits your personal and financial circumstances.

What are the Benefits of Buying a Home Loan Insurance in India?

• Coverage of Outstanding Loan
  If the borrower passes away, becomes disabled, or is diagnosed with a serious illness, the insurer pays off the remaining home loan amount. With this home loan protection insurance, you can protect the family from the burden of EMIs and ensure they don’t lose their home due to unpaid dues.

• Flexible Policy Tenure
  The home loan insurance duration usually matches your housing loan's tenure. This way, you stay protected for the entire period of your repayment obligation, and the policy naturally ends when the loan is fully cleared.

• Option to Add Critical Illness Cover
  Many home loan insurance plans offer an add-on for critical illness coverage. Suppose the borrower is diagnosed with a significant illness such as cancer, heart disease, or stroke. In that case, the insurer covers the loan liability, allowing the family to focus on recovery instead of finances.

• Premium Payment Choices
  Borrowers can pay the premium as a one-time lump sum or add it to their EMIs. This flexibility makes the policy affordable and easy to integrate with your loan structure.

Best Home Loan Insurance Plans in India 

• Hybrid Home Loan Insurance Plans
  Under a Hybrid cover plan, the coverage amount remains constant during the first year and gradually decreases from the second year onwards. This decline aligns with the reducing outstanding balance on the home loan, ensuring the coverage matches your repayment progress.

• Level Cover Plan
  In a Level cover plan, the coverage amount remains fixed throughout the entire term of the home loan. Regardless of the loan balance, the insured enjoys the same level of protection for the full duration of the policy.

• Reducing Property Insurance for Home Loan
  Under this plan, the coverage amount steadily reduces over time in proportion to the outstanding loan amount. As the home loan is repaid, the insurance cover decreases accordingly, keeping the protection aligned with your remaining liability.

Should I Buy Term Insurance or Home Loan Insurance?

Both term insurance and home loan insurance aim to protect your family from the financial burden of an unpaid loan. However, they work differently. A term insurance plan offers comprehensive financial security to your family, the payout can be used to clear the home loan or meet any other expenses. In contrast, a home loan insurance policy is specifically designed to cover your outstanding loan amount. While home loan insurance directly repays the lender, term insurance gives your nominee the freedom to decide how to use the claim amount. For long-term flexibility and wider protection, term insurance often proves to be a more beneficial option.

Can I Use Existing Term Insurance for Home Loan Protection?

Yes, you can use your existing term insurance for home loan security. You simply need to assign the policy to your lender or inform them in writing. The lender will then have the first right to the claim amount up to the outstanding loan balance, and the remaining amount (if any) will go to your nominee. This option is cost-effective and practical since you don’t need to buy a separate home loan insurance plan, your existing term cover efficiently takes care of both family protection and loan repayment.

Why Linking Home Loan Insurance With Term Insurance Matters?

A home loan is only one part of your family’s financial security. While home loan insurance protects your house, it may not cover other expenses like children's education, daily living costs, or long-term savings. A term insurance plan complements home loan insurance India by:

• Providing a larger coverage amount beyond your home loan, safeguarding your family’s lifestyle.

• Ensuring financial continuity even after repaying the loan covers education, retirement, and emergencies.

• Offering affordable premiums with flexible tenure to match your financial planning.

By combining term insurance with home loan insurance, you get a comprehensive protection strategy that secures your home and your family's future.

How to Link Term Insurance with Home Loan?

Linking your term insurance for home loan is a simple process that ensures your loan liability is automatically covered. You can:

• Inform your lender that your term policy will serve as your loan cover.

• Submit policy details (policy number, sum assured, insurer name) to the bank or housing finance company.

• Assign the policy in favour of the lender, if required, so that the loan amount can be settled directly from the claim.

• Update the lender if there are any changes to your policy or loan amount.

How Does Home Loan Insurance Work?

Home loan insurance functions as a safety net for both borrower and lender. When a claim is triggered due to the borrower's death, disability, or another covered event, the insurance company directly settles the outstanding loan amount with the lender.

This direct repayment ensures that:

• The property remains secure and free from the risk of repossession.

• The borrower's family doesn't have to step in to pay EMIs.

• The lender recovers its dues without financial disruption.

In short, home loan insurance plan transfers the financial risk from the borrower’s family to the insurer, ensuring peace of mind for everyone involved.

How to Plan Your Home Loan Coverage?

Here is how you can plan the ideal home loan insurance policy cover amount:

• Home Loan EMI Calculator: This tool helps you quickly calculate your monthly EMIs and the total outstanding loan amount. By knowing exactly what you owe, you can determine the right coverage amount for your home loan insurance policy, ensuring your family is fully protected if anything happens during the loan tenure.

• Term Insurance Calculator: This calculator will estimate the ideal term insurance coverage based on your family’s financial needs, including your home loan, daily expenses, children’s education, and long-term goals. It helps you see how much additional protection you require beyond your home loan insurance.

• Plan a Complete Protection Strategy: Combining home loan insurancepolicy with a term insurance plan ensures your home and overall family finances are secure. You can explore our term insurance plans to find one that complements your home loan coverage, providing comprehensive financial security for your loved ones.

How to Buy Policybazaar Home Loan Insurance Plan?

Here is how you can buy Policybazaar home loan insurance India:

Step 1: Visit the term insurance page of Policybazaar

Step 2: Fill in your name, gender, and other contact details

Step 3: Select the right annual income, educational qualifications, occupation type, and smoking habits

Step 4: Choose the best home loan insurance policy in India and proceed to pay the premiums

Wrapping It Up

Home loan insurance plan is more than just a safeguard for your loan; it’s a financial safety net that protects your family from unexpected hardships. Covering the outstanding home loan in case of death, disability, or job loss ensures your loved ones can keep their home without financial stress. It also gives lenders confidence that their loan will be recovered, making it a win-win for both parties. Combining home loan insurance with life insurance or critical illness riders can strengthen your family's financial security, giving you peace of mind that your home and loved ones are always protected.