Home Loan Insurance begins with a promise of security, covering your Housing Loan against unforeseen circumstances that might affect your ability to repay. But what exactly is it, and why is it crucial for anyone with a mortgage? Let's delve into the fundamentals of Home Loan Insurance and how it can benefit you.
What is Home Loan Insurance?
Home Loan Insurance, also known as a Home Loan protection plan, is a type of insurance policy for Housing Loan borrowers that ensures the repayment of the loan in case of untimely events like the borrower's death, disability, or job loss. Unlike regular Home Insurance, which covers physical damages to your property, Home Loan Insurance is designed to safeguard the borrower's ability to continue loan payments under challenging circumstances.
How is it different from Home Insurance?
While both Home Insurance and Housing Loan Insurance aim to protect against losses, they serve very different purposes.
Home Insurance focuses on the property itself—protecting it from damage or loss due to fire, theft, and other hazards. Conversely, Home Loan Insurance secures the borrower's financial responsibility, ensuring that the loan does not become a burden to the borrower's family or dependents.
Features of Home Loan Insurance
Home Loan Insurance is designed to provide a safety net for borrowers by covering various risks associated with a housing loan. Here are some of the key features that make it an essential consideration for anyone taking out a mortgage:
Coverage of outstanding loan
One of the primary features of insurance against a Home Loan is its ability to cover the remaining balance of your mortgage. This means that if something unexpected happens to you, such as death or a disabling illness, the insurance policy steps in to pay off the outstanding loan amount. This crucial benefit ensures that the burden of debt does not fall on your heirs, protecting your family from financial strain and potentially losing their home.
Policy term flexibility
Home Loan Insurance is flexible in terms of its duration. Typically, the term of the insurance policy can be closely aligned with the length of your home loan. This alignment ensures that you are covered throughout the period you are most vulnerable, i.e., while you still owe money on your home.
Critical illness coverage
Another significant feature of Home Loan Insurance is the inclusion of critical illness coverage. This coverage is particularly beneficial as it addresses scenarios where the borrower is diagnosed with a critical illness that could impede their ability to work and, consequently, their ability to meet mortgage payments. Diseases such as cancer, heart attack, or stroke, which require extensive treatment and can lead to significant medical expenses, are typically covered under this feature.
Importance of Home Loan Insurance
Financial institutions have a vested interest in avoiding defaulted loans. That's where Home Loan Insurance becomes essential. This safeguard is in place to prevent home loans from becoming a significant liability. In the event of the borrower’s death, particularly if they are the sole provider, the lender could face substantial losses. This insurance is more than a safety net; it's a promise of stability for borrowers.
How does this insurance work?
When a claim is made on a Home Loan Insurance, the insurance company settles the outstanding loan amount directly with the lender. This direct payment ensures that the property remains free from the risk of possession due to unpaid dues.
Characteristics of Home Loan Protection Insurance
Understanding the key characteristics of Home Loan Insurance can help you make an informed decision:
Payment in one lump sum
Home Loan Insurance can be settled in one full payment. Alternatively, policyholders have the flexibility to integrate the premium with their loan amount and repay it through monthly installments.
Joint house loan borrowers
Home Loan Insurance plans extend their protective umbrella to all co-borrowers associated with the loan. Consequently, if a loan is taken out jointly by family members, the demise of any one borrower will activate the insurance coverage, safeguarding the others.
Riders and add-ons
While the primary Home Loan Payment Protection Plan guards against the event of the borrower's death, adding riders to the policy can broaden the scope to cover critical illnesses like heart attacks and cancer, as well as accidents causing disability. These add-ons can even provide for EMI payments for a period, typically up to six months, in case of involuntary job loss.
Also Read: Why is it wise to prepay your Home Loan?
FAQs
Is Home Insurance tax deductible?
Yes, if the premium is paid directly by the borrower, they can avail of a tax deduction as per Sections 80C of the Income Tax Act.
What is the amount of insurance required for a Home Loan?
The amount of Home Loan Insurance required typically matches the outstanding loan amount. It should cover the total loan so that in any event, the insurance can fully repay the borrowed amount.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
Insurance Disclaimer: Purchase of insurance product by Bank’s customer is purely voluntary and not linked to any other facility from the bank.
