Most financial institutions offer a home loan insurance along with a home loan.
While there is no regulation which says it is mandatory to buy a home loan insurance along with a home loan, it is advisable to have one. You won’t have to worry about loan repayment or losing your investment should anything unfortunate happen to you.
It is not necessary that you buy your home loan insurance from your lender. In fact, you should always compare the plans and choose the one that best suits your needs.
Here are four reasons why you should have a home loan insurance cover.
Protects your family: In the event of the breadwinner’s death, who is usually the one repaying the loan, the onus of repayment falls on the family. Where the family is unable to repay the home loan, the lender will take over the home (which is usually the collateral) to realise the unpaid loan amount.
A home loan insurance will come in handy in such an event. The family has to just claim the loan protection amount and that will pay towards the unpaid loan.
Says Arijit Sen, a Sebi-registered investment advisor and co-founder of Merry Mind, a Kolkata-based financial advisory firm: “If one is purchasing a residential property with a home loan, there’s a need to cover the liability with insurance equivalent to the loan amount. The arrangement of a home loan insurance policy is such that the insurer pays the lender the outstanding balance of the home loan amount if the borrower dies an untimely death during the loan tenure. By purchasing a home loan insurance policy, the borrower can ensure that his/her family will not have to repay the home loan or abandon the residence due to non-payment of the loan balance after his/her death during the loan tenure. Effectively, the family need not liquidate other fixed and financial assets to pay off the outstanding home loan.”
Borrower with critical illness or disability: It may so happen that due to critical illness and/or disability, the borrower is not able to make a living. In such a scenario, paying the equated monthly instalments (EMIs) on the home loan will become difficult.
Here, riders that cover critical illness and disability should be considered while buying the home loan cover. It should be noted that many home loan insurance plans cover critical illness and disability, too.
Easy to pay premium: Many home loan insurance covers also provide for protection against non-payment of equated monthly instalment.
Says AK Narayan, CEO, AK Narayan Associates, a financial planning firm: “There might be a situation where the loan bearer cannot afford the premium. In such a case, the premium amount is added to the loan amount and deducted through monthly or quarterly EMIs.”
Tax benefits on premium: You could also avail tax deductions under Section 80C of the Income-tax Act, 1961 on the premium you are paying for a home loan protection cover. If the amount is included in your monthly loan repayment EMI, that will also increase the amount available for deduction under Section 80C.
