Buying a home is a dream for many individuals and opting for home loans is always the smarter way to turn this dream into reality. With real estate prices dropping significantly along with consistent depreciations in home loan interest rates, buying your dream house has become easier than ever. However, keeping things safe and secure is essential because life can be unpredictable.
You can never be absolutely sure about what’s in store for you in the near and long-term future. The tenure of home loans can last up to 30 years making the situation quite tricky. Ensuring that your EMIs don’t turn into a nightmare in case of unforeseen situations is crucial. As a result, home loan insurance plans also known as home loan protection schemes come into the picture.
Basics of Home Loan Insurance Schemes
Essentially, insurance on home loans cover specific circumstances that lead to non-payment of EMIs. So, when you fail to pay your EMIs as a result of any of the events covered under your insurance plans, then the insurance company will handle the settlement of outstanding loan with the lender institution i.e. Banks, NBFCs or housing finance companies.
Unpleasant eventualities tend to make it difficult for you to repay your loan. Under some circumstances like critical illness, loss of employment and untimely death, regular payment of EMIs is simply impossible. In case of early death, the burden of loan repayment will fall on your close relatives putting their financial health at risk.
If the dependent family members of the borrower fail to repay the loan, then the home and other collaterals may be seized by the lending institution. Hence, home loan insurance plans are not only about protecting yourself but also your family in case of eventualities. It will also ensure that they always have a roof on their head even in the worst scenario.
Insuring your home loan/ mortgage will bring about several benefits and help you tackle your responsibilities effectively. Depending on the type of insurance you choose, you can get coverage for a wide variety of situations. Here are all the things you need to know about home loan insurance plans to make a prudent choice.
Factors You Need To Consider
Well, it is important to note that the events & circumstances covered under different home loan insurance schemes are different. Hence, selecting the right plan covering the highest number of eventualities can give you optimum protection.
Most borrowers choose to get their home loan insured by the lending institution. However, this is not mandatory. You also have the option of getting your home loan/ mortgage insured by other insurance companies.
Another crucial factor you must consider is your timing. You may get your home loan insured some months or years after loan disbursement. However, it is always more prudent to opt for mortgage insurance at the time of loan approval and disbursement.
Borrowers should also note that many home loan protection plans give you the option of making a one-time premium payment towards insuring your loan for the entire tenure. Opting for this provision allows borrowers to club the premium amount with the home loan. Hence, the overall liability decreases because you don’t have to separate insurance premiums while paying loan EMIs.
Types of Home Loan Insurance
In general, insurance companies and lenders offer three distinct types of home loan insurance products. We are listing and describing them below for your understanding.
- Plans with Level Coverage- In this case, the coverage amount does not change at any point of time.
- Plans with Hybrid Coverage- In such policies, the coverage amount equals the loan amount in the first year. From the second year onwards, the coverage amount continues to decrease with reduction in outstanding loan amount.
- Plans with Reducing Coverage- Here, the coverage amount starts depreciating after the first day of loan approval & disbursement.
So, when you are on the verge of selecting home loan insurance plans you must take into account the facts mentioned above in order to make the most suitable decision as per your requirements.
Benefits of Home Loan Insurance Schemes
Home loan insurance schemes are highly beneficial for borrowers and lead to significant reductions in financial liabilities in case of eventualities. Apart from the obvious advantages, these schemes prove exceedingly valuable in various other ways as listed below:
- Most schemes offer lump-sum benefits allowing borrowers to repay outstanding loan amount easily.
- Borrowers can avail tax benefits under sections 80 (C) as well as 80 (D) of the Income Tax Act.
- The best plans provide coverage not only in case of early death but also critical illnesses and loss of employment.
- In case of joint loans, all the borrowers can get coverage for their share of the loan.
- The option of clubbing one-time premium with the home loan principal amount makes it extremely convenient for borrowers.
Even though Home Loan/ Mortgage insurance is not mandatory for approval & disbursement of loans, it makes sense to get insured. Most lending institutions provide this facility in a seamless and convenient fashion and borrowers don’t have to face any useless hassles in the process.
All in all, we can safely say that Home Loan Insurance Plans are exceedingly advantageous for borrowers leading to substantial reduction of the financial burden in case of unforeseen situations. Hence, it is always prudent and sensible to opt for these schemes with even small insurance premiums leading to several long-term and large-scale advantages.
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