Here is everything you wanted to know about home loan insurance policies in India.
Home loan insurance also referred to as mortgage insurance, is a cover that protects a home loan borrower from adverse situations. Availing housing finance means a long-term repayment responsibility for a borrower, hence a home loan insurance policy ensures a borrower is helped and covered in case he is not able to repay his home loan EMIs.
What is home loan insurance?
A home loan insurance policy ensures the home loan of a borrower is paid by the insurance company in case the person is unable to make the EMI payments due to unforeseen circumstances. Such situations may arise due to the sudden death of the primary borrower, job loss, or major accidents. The terms and conditions of your home loan insurance policy depend on the type of policy you have taken. Many comprehensive home loan insurance policies are available in India that offer different covers.
Home loan insurance providers in India
Almost all banks in India have insurance subsidiaries that sell home loan protection plans. The State Bank of India (SBI), for instance, has SBI Life; ICICI Bank has ICICI Lombard; HDFC has HDFC Life and HDFC Ergo. However, there are banks that don’t have an insurance subsidiary tie-up with life insurance providers and general insurers companies to sell home loan and home loan insurance packages.
Is it necessary to buy a home loan insurance policy?
You are not obliged to buy a home loan insurance policy, though the bank providing you the loan would make it sound like you must. Banks always budge the borrower to go for a home loan insurance policy as it guarantees him loan payment even if the borrower is not able to pay. The insurance company will help in such a case.
However, for their own good, home loan borrowers must buy a home loan insurance policy. Financial planners are unanimous in their opinion that home loan borrowers must buy a home loan insurance policy to get cover against any misfortune.
Home loan insurance premium
In the majority of the home loan insurance policies, the borrower has to pay a one-time premium to the insurance company. However, there are also home loan protection plans where the borrower can pay the policy premium in certain installments. The amount of money you pay as the home loan insurance policy installment depends on the home loan amount, and the type of cover you have opted for. Your age and medical records affect the home loan insurance policy premium amount. Basically, the older you are, the higher is the premium, and the more physically fitter you are, the lower is the premium.
Home loan insurance coverage period
A home loan insurance policy remains effective throughout the home loan repayment tenure. Once the loan is fully paid, the insurance protection ends. The home loan insurance policy would lapse after the death of the borrower. The same is true if the home loan is transferred to another bank.
The home loan insurance plan coverage reduces as you repay the home loan. If you have already paid Rs 10 lakh out of a home loan of Rs 30 lakh, the protection plan will pay only Rs 20 lakh to the bank, in case of a mishap.
Home insurance versus home loan insurance
Home insurance and home loan insurance are two different services. While the former protects your home in case of an adverse situation, the latter would take care of your pending home loan in case you are unable to pay due to some mishap.
Tax benefits on home loan insurance
Those who have purchased a home loan insurance policy can claim deductions under Section 80-C of the Income Tax Act, to pay the home loan insurance premium. But, if you have borrowed money to pay the home loan insurance premium, you will not be able to claim the deduction.