A Complete Guide for Home Loan Insurance

With the help of Home Loans, most people achieve their dream of becoming homeowners. Home Loans are low-interest loans with a long repayment tenor, which makes it easy for borrowers to repay them. Unfortunately, life is uncertain and sometimes, we find ourselves facing situations that we are not fully prepared for. It is, thus, that lenders ask borrowers to buy Home Loan protection insurance when buying a home and availing of a housing loan to fund the purchase. Home Loan insurances are not only important for lenders but they are also equally important for borrowers. In this article, we look at why borrowers must consider buying Home Loan insurance when availing of a Home Loan.  

What is Home Loan Insurance?

In very simple words, Home Loan insurance, also known as home mortgage insurance or  term insurance for Home Loans, is an insurance scheme for your home. Under this type of insurance scheme, the insurer and the Home Loan borrower enter an agreement that in the case a Home Loan borrower is unable to clear Home Loan EMIs due to some unforeseen circumstances, the insurer will pay the pending amount. Home Loan insurance is important because it saves borrowers from losing ownership of their homes in case of unforeseen circumstances. Further, premiums paid towards Home Loan protection insurance help borrowers save money as a borrower can claim a tax deduction on these. 

Also Read: 10 Useful Income Tax Deductions 

Home Loan insurance or  home mortgage insurance can be of two different types. Some housing loan insurances only protect your home while others also take care of your belongings in the case of a natural disaster as well as your assets or liabilities, etc. While the first ones are known as home mortgage insurance, the second ones are better known as term insurance for Home Loans. Obviously, the second type of Home Loan insurance policy is more expensive than the first one. It is entirely up to the borrower to decide the type of Home Loan insurance plan  that will work for them. Further, in the case of most  housing loan insurance  plans, the sum insured keeps going down with time. However, some companies offer  term insurance for Home Loans and in the case of these insurance plans, the insured sum remains the same throughout the life of the plan. Further, if you opt for Home Loan insurance, your insurer will pay money directly to the lender in case of a loan default. However, when borrowers go for  term insurance for Home Loans, the money comes directly to them.

Home Loan borrowers can buy Home Loan insurance  either from a life insurance company or a general insurance company. It does not matter which one you go with, just remember to enquire about all add-ons at the very beginning. Most people buy an insurance plan for their home that guarantees repayment in case of the borrower’s demise. However, people should opt for plans that provide coverage even in the case of unemployment or any kind of disability. These days, people lose jobs all the time and when this happens, it becomes difficult for them to take care of their various obligations, including Home Loan EMIs. Therefore, a Home Loan borrower must opt for housing loan insurance that covers all kinds of unforeseen circumstances. Further, one should also look at that in case of damage, if the insurance plan provides protection only for the home or for the appliances and other things as well. These are some important questions and one must have clear answers to these questions.  

Further, though one can claim deductions on payments made towards Home Loan insurance, the premium itself is expensive and therefore, a borrower must opt for these plans only when they know they can take full responsibility for both the Home Loan premiums as well as Home Loan EMIs.   

Some Things You Must Know About Home Loan Protection Plans

• The first thing you must know about Home Loan insurance plans is that, unlike Home Loans, borrowers are not required to pay for these plans in the form of EMIs. These plans include a one-time premium payment, which is often a hefty amount. Your lender will include the Home Loan insurance amount, if you choose to go for it, to your Home Loan amount and the premium will therefore get adjusted in your EMIs. Therefore, it seems to borrowers that home mortgage insurance is paid in the form of instalments, even when the premium is paid only one time. 
• Most Home Loan protection plans go on till the end of the tenor of the housing loan, i.e. if your Home Loan EMIs are on, your home will stay covered and as soon as your loan ends, so will your cover. Talk to the company representative and get clarity on this.  
• Borrowers get the flexibility to choose their rider plans along with the home cover. You can choose to include terminal illness, accidental death, unemployment, disability, etc. as situations when your insurer has to step in to cover your Home Loan EMIs.  

Benefits of Home Loan Insurance

Now that we have a basic understanding of housing loan insurance plans, let us look at why borrowers should opt for these plans. 

• When borrowers apply for a housing loan, lenders decide the loan terms and conditions based on how likely it is that the borrower will repay the loan on time and the risk involved for them in lending money to the borrower. When borrowers opt for a Home Loan protection plan, they reduce the risk involved for the lender in lending money to the borrower. Therefore, in this case, lenders extend Home Loans at nominal interest rates, which in turn, helps borrowers keep their EMIs affordable and reduce the total interest pay-out. 
• The biggest benefit of a home insurance policy is that it saves borrowers from losing ownership of their property when life takes an unpredictable turn. In the case of most home mortgage insurances, the borrower can choose the circumstances in which the insurer will cover loan EMIs. Borrowers can choose to add untimely death, disability, joblessness, terminal illness, etc. as cases in which the insurer will cover Home Loan EMIs. 
• Lastly, one can claim a tax deduction on premiums paid towards housing loan insurance plans under Section 80C of the Income Tax Act. Thus, these premiums help borrowers save a lot of money in the long run. 

Which Home Loan Insurance Should One Go for? 

Before we answer this question, let us tell our readers that you don't need to buy Home Loan insurance. If your credit score is low and your financial health is dubious, your lender may ask you to add home mortgage insurance. Otherwise, it will entirely be up to you to decide whether you need insurance. However, it is always a wise idea to opt for Home Loan insurance. These days, many companies provide Home Loan insurance. Before you go ahead with any one of these companies, do proper market research and see what you are being offered by the other players in the market. Once you have all the offers, compare them using a Home Loan EMI calculator and go with the most profitable one. 

Also Read: Know all About Top Up Loans and How to Avail of Tax Benefits 

Things to Keep in Mind When Availing of Home Loan Insurance

If you are planning to avail yourself of home mortgage insurance, there are a few things that you must keep in mind. 

• Before applying for Home Loan insurance, sit down and figure out what is it that you want to be covered in your home insurance mortgage plan. For instance, you must have answers to questions, such as Do you want your insurance plan only to want to cover your Home Loan EMIs? Do you also want your home appliances and other things covered in your plan? Having a clear idea of what you want will help you get the right home mortgage insurance plan for you.  
• Not every home insurance mortgage plan covers natural disasters. So, if there is an earthquake in your area and your home suffers damages, the insurance plan will not cover it. It is only when you opt for natural disasters as one of the riders while opting for Home Loan insurance that your insurance company will cover damages caused by such disasters. Therefore, while opting for a home insurance plan, talk to your insurance agent and have them explain to you in detail what the plan covers and what it doesn’t. Add riders and add-ons to safeguard yourself completely. 
• After you have availed of Home Loan insurance, make it a plan to review your policy each year. This is crucial because the value of things changes and therefore, your damage cover should increase too with time. 
• Even when a borrower’s home is covered, they must pay certain out-of-pocket expenses. These expenses are known as deductibles. Before signing the home insurance plan, get an idea of the deductibles. This will help you from unwanted future expenses.   

Conclusion

Buying a home is a huge responsibility. It is a decision that will affect every aspect of your life as well as the way you live your life. Therefore, borrowers must avail of a Home Loan after proper planning. Use a  Home Loan EMI calculator to figure out the  housing loan EMIs you can afford to pay each month and borrow what’s affordable. Never take more than what you can repay. Opt for a tenor that allows you to become debt-free quickly while also letting you keep your EMIs affordable. Lastly, safeguard yourself by availing of a Home Loan insurance plan so that if a financial emergency strikes, you don't find yourself losing ownership of the property that you have built with hard work and patience. Home Loan insurance may seem like an unnecessary expense, but in truth, it is not.