When taking a home loan, safeguarding your family from financial burden in case of unforeseen circumstances is crucial. Two popular options for securing a home loan are Home Loan Insurance (Home Loan Protection Plan or HLPP) and Term Insurance. Home Loan Insurance (or Home Loan Protection Plan) and Term Insurance serve different purposes. “Home Loan Insurance is specifically designed to cover the outstanding home loan balance in case of the borrower's death, with the payout going directly to the lender to clear the debt. Its coverage decreases over time as the loan is repaid,” says Kapildeo H Maurya, executive director, Urban Money, a tech-enabled loan platform.
In contrast, Term Insurance provides a fixed lump sum to the nominee upon the policyholder’s death, offering broader financial security beyond just loan repayment. “The payout can be used for any purpose, including repaying the loan. Additionally, Term Insurance is generally more cost-effective and flexible, providing consistent coverage throughout the policy term, even if the loan is paid off early,” says Maurya.
Let us take a look in more detail.
Home Loan Insurance or Home Loan Protection Plan (HLPP) protects the borrower and his/her family by providing security for the balance in case of death, critical illness, or disability. The plan minimizes the loan balance, which helps to manage liability effectively. Premiums can be paid upfront or added to the loan, and numerous riders for multiple benefits, such as critical sickness or job loss coverage, improve protection. “HLPP is a useful tool that protects the lending institution from financial risks associated with home loans while also providing for the borrower's family, eliminating the need for payback. To ensure total security, HLPP must be combined with comprehensive financial planning,” says Shams Tabrej, CEO, Ezeepay, a payment solution provider.
On the other hand term insurance provides financial stability by guaranteeing a predetermined payment to the nominee in the event of death during the insurance policy's term. The premiums are comparatively lower than other types of life insurance plans, hence making it affordable. “According to the requirement of the policyholder, the amount and tenure can be chosen at the time of purchasing the insurance, and premiums can be paid in a regular or lump sum. A term insurance policy doesn't offer maturity benefits if the policyholder survives. However, this kind of income replacement ensures that your family is financially secure, and optional riders such as critical illness or accidental death further enhance coverage, providing extra protection,” says Tabrej.
What Should You Choose
HLPP as well as Term Insurance have different selections because of individual needs. HLPP is prepared only to protect the family of the borrower from the financial burden of a home loan in case of death or disability. It provides insurance coverage in specific terms and ensures that the loan is repaid, but only for that purpose.
Term insurance, on the other hand, offers a far wider range of financial protection, providing income replacement to your family for a variety of financial requirements, from debts and everyday living costs to major long-term goals. “While HLPP is beneficial for those looking to secure a house loan, term insurance offers considerably better security for the entire family. Both can be combined to provide additional protection,” says Tabrej.
