All about Home Loan Insurance Covers

All about Home Loan Insurance Covers

What happens if the principal borrower of a home loan is unable to repay the loan EMIs owing to certain unfortunate circumstances? Instances like partial or complete disability or even the death of the primary bread-winner (in this case, the borrower) can put their dependants under a huge debt. If the dependants are unable to repay the loan, the lender may even seize the property and/or the collateral provided, thus putting dependants in a state of financial duress. Yes, home loan borrowers, need to prepare for situations like these in advance. The best way of doing so is by opting for home loan insurance. Here’s all you need to know about it.

Home loan insurance cover – a definition

Home loan insurance cover is a type of insurance scheme under which the insurance provider settles the outstanding housing loan amount with the lender, in case of any unfortunate and unforeseen situation. This way, the onus of repaying the loan does not fall on the dependants of the borrower, nor do they have to worry about losing their investment. The home owner can choose from a wide range of insurance covers and the premium payable against the insurance policy depends upon the type of cover chosen.

The importance of the cover for lenders and borrowers

Every lender wishes to protect their investment. The last thing they want is for a loan to turn into a bad debt. Therefore, the main reason why a lender opts for housing loan insurance cover is to protect the loan from turning into a bad debt. In the unfortunate event of the death of the borrower before the loan is repaid, the lender may lose a lot of money, especially if the borrower is the breadwinner of the family.

The loan insurance plan provides coverage against the outstanding home loan amount if the borrower is unable to repay the debt. The insurance provider repays the EMIs in several circumstances apart from the demise of the borrower, such as a disability that prevents the borrower from being employed again or even unstable employment. As such, the house loan insurance ensures the borrower (and dependants) don’t become homeless in a crisis situation.

Things to consider before purchasing insurance cover for your home loan

Type of insurance cover required

There are two types of home loan insurance covers that you can choose from. They are:

Term insurance – Term insurance protects all your liabilities and your debts, including your home loan. The coverage remains the same for all assets insured in case of term insurance. Also, the nominee receives the sum assured in case of the death of the insured party and must make the payments to the lender to settle the loans.

Separate home insurance– As the name suggests, this insurance for home loan protects only your outstanding home loan amount if you are unable to repay it. The size of the coverage you receive depends upon the outstanding home loan amount. As such, the sum insured reduces with every EMI repaid. In case the policy has to be encashed by the borrower or the nominee listed, the insurance provider makes direct payments to the lender and settles the loan.

Things to remember before buying the home insurance policy

• You can purchase home loan insurance from either a general insurance provider or a life insurance company.
• Policies purchased from general insurance providers need to be renewed on an annual basis and the premiums charged are significantly lower.
• If you purchase a home insurance policy form a life insurance company, you may have to pay higher premiums but you get long term coverage.
• You can purchase the policy either by visiting the office of the insurance provider or online through the insurance company’s website.
• Remember to compare plans before choosing your insurance provider.

Final word: When you take on a home loan, you are taking on a financial responsibility that lasts for several years, depending upon the tenure of your loan. But since you cannot predict what can happen in the more than 20 years tenure of the loan, it is better to insure the loan by investing in home loan insurance.