Taking a home loan to buy a house, and if such a person faces an untimely demise, it becomes difficult to repay the loan, and consequently, it may not be possible to waive off the debt.
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What is home loan insurance?
If someone takes a home loan to buy a house and faces an untimely demise, it becomes difficult to repay the loan, making it impossible to waive off the debt. In such cases, banks or NBFCs selling the loan resort to home selling for loan recovery. Consequently, the time may come for the deceased family to become homeless. In such scenarios, home loan insurance is an excellent option. Through home loan insurance, if the borrower dies within the tenure of the loan, the insured amount on the name of the deceased person is paid by the insurance company to the banks or NBFCs, providing significant relief to the family.
How does one get home loan insurance?
Home loan insurance is available in two forms: 1. Term Insurance and 2. Home Loan Insurance. Term insurance covers the loan amount at a minimal cost, whereas home loan insurance is specific to the loan amount. The cover of term insurance remains constant and does not decrease as per the repayment, whereas the cover of home loan insurance decreases along with the loan repayment.
Which cover among the two is more beneficial?
Taking term insurance cover is definitely beneficial. For instance, if someone took a home loan of Rs. 75 lakhs at 9.5% interest for 25 years in 2007 and took a term insurance policy of Rs. 75 lakhs and faced an untimely demise in 2023, the family would receive around Rs. 47 lakhs, the amount remaining in the loan, which would be paid by the bank, and an additional Rs. 28 lakhs as inheritance. This wouldn’t have been possible if they had only taken the Rs. 47 lakhs from the bank without the home loan insurance policy.
Is taking home loan insurance binding?
It’s not binding but is definitely necessary.
How is the premium of home loan insurance calculated?
Home loan insurance is a single premium policy. The premium is paid at the beginning, and once taken, it becomes a part of the loan amount. For instance, if the premium of a home loan policy worth Rs. 75 lakhs is Rs. 3 lakhs, it gets included in the car amount, making the loan amount Rs. 78 lakhs, and the EMI is calculated accordingly.
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Information Source: Internet
