Why is Housing Loan Insurance Important in 2022?
A housing loan insurance policy covers the loan amount in case of failures of home loan repayment by you. Thus it is beneficial for both the lender and the borrower.
Importance of Home Loan Insurance for Lenders
Home loan insurance policy is important for lenders. Banks and NBFCs earn a lot through home loan interest rates and they don’t want to lose their money when you are unable to pay. A failure on your part can disrupt the lender’s regular sources of income. Thus, home loan insurance is ideal for lenders, because in any case, banks receive the expected funds.
Importance of Home Loan Insurance for Borrowers
Home loan insurance is important for you as it ensures that in case of loan default, the insurer will pay the loan on your behalf. In that case, home loan in your absence will not burden your family members during financial crisis. Note that, a home loan is a secured loan that gives the lender the right to take the mortgaged property in case of inability to repay the loan. However, with home loan insurance, you will not lose ownership of the home even if you fail to repay it.
Types of Insurance Cover for a Home Loan
There are three types of home loan insurance cover, level cover plan, hybrid cover plan and reducing cover plan. These three types differ on the basis of insurance coverage, as explained below:
Level Cover Plan:
This is a basic insurance plan in which the premium paid for home loan insurance and coverage remains the same throughout the tenure.
Hybrid Cover Plan:
As per this home loan insurance plan, the coverage is full for the first year and then the balance reduces with the tenure.
The Reducing Cover Plan: In case of reducing cover plan, the loan balance and coverage reduces over time, the coverage is reduced when the tenure is about to end.
What are the main features of home loan insurance?
It is advisable to know the features of home loan insurance plans before opting for one. These are listed below:
Only one-time premium amount is to be paid and there are no multiple premium requirements on home insurance. However, the premium is paid as per EMI. Thus, the premium amount is divided into monthly payments just like the original loan amount.
Implications on Balance Transfer:
In case of home loan balance transfer, the implications of home loan insurance may vary. Sometimes the new lender may insist on a different home loan security plan or be flexible with the previous one. Also, home loan insurance may end with balance transfer, and the insurer may ask you to resume insurance plans. Thus, in case of balance transfer, one should ensure restructuring of home insurance plans.
Covers joint home loan borrowers: Home insurance is not limited to a particular person in case of joint home loan. In fact, in case of joint loan, the insurance coverage is applicable to all the co-applicants.
What are the main benefits of Home Loan Protection Plan?
There are multiple benefits associated with home loan security plans. This includes:
The main benefit associated with home loan insrance cover is that it provides security coverage to both the lender and the borrower. When the lender is protected from loss, you are spared a huge liability in times of financial distress.
The premium paid on home loan insurance provides borrowers with the same tax benefits as a home loan. However, you can get tax benefits under Section 80 (c) and 80 (d) of the IT Act.
Convenience and flexibility:
Home loan insurance premiums are generally charged at a higher rate. However, to make it easier for you, lenders often combine the premium amount with the regular EMI. Thus, like the principal amount borrowed, the premium is also paid in installments, which makes it convenient for home loan borrowers.
Housing policies are very inclusive when it comes to extending the cover benefits. For example, provides coverage for various schemes that include illness, sudden death or unemployment. However, suicide is not covered under home loan insurnce schemes. Additional benefits can be availed by opting for term insurance for home loans.
Difference between housing loan insurance and home insurance
Home loan insurance is different from home insurance. The table below lists the differences between the two.
Home Insurance vs Home Loan Insurance- What’s the Difference?
At some point in life, we all want to buy a home. As simple as it sounds, buying your dream home involves years of hard work, effort, patience and savings. Buying a home is definitely a dream come true.
That feeling of calling a space your own. It is special, unsurpassable and definitely a lifetime experience. It is suggested to purchase a home insurance policy to protect the home.
There are times when people also take a home loan from a bank or any financial institution. Taking a home loan is an ideal way to afford your own place and not compromise on other essential expenses. However, home loan EMIs must be paid on time.
People often get confused about these two terms – home insurance and home insurance. In this article, let us discuss and understand the difference between home insurance and home loan insurance.
What is home insurance?
A home insurance policy protects the home and its contents against any unexpected loss or damage. It protects the home and personal belongings against any damage/loss due to natural calamity, man-made calamity, theft etc.
When we talk about home insurance policies usually provide content damage cover and structural damage cover. Structural damage cover ensures that financial assistance will be provided only if the structure of the house is damaged. On the other hand, content damage cover provides financial assistance for loss/damage to household contents. Damage can be to furniture, any electrical appliance etc. Repair costs are mostly covered under this cover.
Home insurance can be purchased by both home owners and renters. It is to be noted that only material damage cover will be provided to the tenant as he is not the person who owns the premises.
What is Home Loan Insurance?
Home loan insurance covers home loan liabilities. It occurs when the borrower is unable to pay due to any adversity. It means that the monthly home loan installments are paid when the borrower is unable to pay them.
It protects against the risk of defaulting on a home loan if an unforeseen circumstance makes it impossible for a person to afford it. Overall, a policy prevents loss of home ownership if the EMI payments are not paid properly. It works to protect the family and pay off the home loan balance in adverse situations.
Home loan insurance coverage will vary from one provider to another. Some insurance companies cover the risk of home loan repayment when the borrower or the homeowner dies. Some insurers cover when suffering from any serious illness, disability or job loss. Be that as it may, the terms and conditions of the scheme should be read carefully.
Premiums paid for home loan insurance are eligible for tax deduction under Section 80C of the Income Tax Act. It also helps in reducing the down payment amount if a policy is taken.
A home loan insurance policy is ideal for individuals who have little savings and want to buy a home early in life. That is because the repayment of the loan is guaranteed by the insurance company. A home loan insurance policy also offers an option to repay the home loan in a single payment or through periodic installments.
Disclaimer: Tax benefits may vary as per current law.