Purchasing a property is a milestone for scaling most Indians and achieving it does require taking a home loan which can stretch to a term of anywhere between 15 to 30 years. The home loans are financially very helpful but on the other hand one should also consider protecting the asset. This is where home loan insurance comes in. It is safe to say that it is better to insure any kind of investment, including home loans so that the entire family is shielded from unpleasant surprises. Home Loan Insurance is to its types, benefits, costs, and custom strategies fitting your situation.

What is Home Loan Insurance?

Home Loan Insurance safeguards the borrower from the multiple risk factors affecting the repayment of the loans. Home loan insurance is coverage that manages the risk of a remaining home loan due to death, disability, or critical illness. In simpler terms even, the insurer pays off the loans to the lender.

Why Is Home Loan Insurance Critical?

A home loan is a form of borrowing that extends over a considerable amount of time. Life, however, remains uncertainty-filled – loss of employment, disability, and death are examples of what can render you unable to repay the loan. In the absence of home loan insurance:

• Your family will have a hard time repaying the balance amount.
• The lender may initiate the process of foreclosure.
• Your family may forgo the dream of purchasing a house.
• You may end up losing the hard-earned equity in the property.

Types of Home Loan Insurance

Mortgage Protection Insurance (MPI)

This is the most commonly used type of home loan insurance and operates on the basis of the insurance amount equaling the outstanding loans balance. In the event of the borrower’s death or permanent disability, the insurer will discharge the outstanding amount to the lender.

Term Life Insurance with Home Loans Rider

A home loans rider added to a term life insurance policy takes care of the loans repayment amount in case of death during the policy term. This option also provides a lump sum benefit to the family.

Critical Illness Insurance

This policy takes care of life-threatening illnesses like cancer, heart attack, or stroke. If the policyholder is diagnosed with any of these conditions, the insurance will pay off the pending loans freeing the individual from the financial burden during difficult times.

Loan Protection Plan

This is a mixture of life insurance and income protection insurance which covers your EMIs for a certain duration, in case you lose your job or suffer from income interruption.

The Advantages of Home Loan Insurance

Financial Security of your Family

In the unfortunate situation of your death or disability, home loan insurance helps to secure the future of your family by ensuring they do not have to make loans repayments.

Guard your Home

Your home is one of the most important assets in your life. The home loan insurance enables your family to have ownership without the concern of losing it due to loans defaults securing the value of the property.

Concentration Relieves Stress

Having your mortgage protected means that you can focus on work and family without having to be concerned about unexpected financial difficulties.

Benefits of Affordability

Since the home loans insurance premium payment is less than that of life insurance policy premium, it is far more cost efficient. This is because the coverage amount diminishes over the period when the loan balance is paid down.

Easy Loan Acceptance

Certain lenders may accept the loans faster or offer a better interest rate if you take home loan insurance as part of your credits package.

How does Home Loan Insurance Work?

When you take out a home loan insurance policy, the value of the cover is typically equivalent to the outstanding amount. Payable EMIs reduces the loan amount, and in most policies, the assured sum decreases also.

• In case of demise or disability: The insurance covers pays the outstanding loan amount to the lender.
• In case of severe illness: The insurance pays off the loan balance so that recovery can be prioritized.
• If no claims are made: The insurance ceases to operate at the expiry of the loans term, after which the home is owned outright, free of debt.

Cost of Home Loan Insurance

A home loans insurance cover comes with several factors that determine its premium:

• Loan amount and tenure: Higher amount of loan and longer tenure attracts higher premium.
• Age of borrower: Younger borrowers take lower premium.
• Health condition: Better health means lower premium and existing ailments will lead to higher premiums.
• Type of Coverage: Policies covering critical illness along with income protection have higher cost.
• Provider of insurance: Premiums differ from one insurer to another.

Usually, the premium lies in the range of 0.1% to 0.5% of the loan amount per annum, making it within means of most people’s reach.

Differences Between Home Loan Insurance and Life Insurance

• Aspect Home Loan Insurance Life Insurance
• Purpose To cover outstanding balance of home loan To Secure the family (nominee) financially
• Coverage Amount Decreases with the repayment of loan Fixed/unit or as per increasing policy availiable
• Policy Tenure Corresponds with loan tenor Fixed. 10-30 years of cover
• Premium Generally on the lower side Can be higher depending on classifications added to the cover
• Benefit Pays lender directly Nominee pays, flexible spending
• Rider Income protection, health, and accident add ons

Conclusion

In the unfortunate scenario of a financial hardship, a home loan insurance product can be necessary to protect such a high value asset. This home loan insurance product can help to mitigate unforeseen financial hardships which act as risk factors for losing a home due to a loans default.