Top reasons you should protect your Home Loan with Term Insurance

Buying a home is everyone's dream. Among many financial goals, this one takes sometimes many years of saving up money, curbing unnecessary expenditures, securing a home loan, and paying regular EMIs. 

Nowadays, it is almost impossible for young salaried families to buy a house on their salary income. Most people take home loan to help them achieve their dream of buying their own home. It is important to note here that the lender will not provide the full amount required to buy a home. Apart from that, you have to pay 20% down payment, stamp duty, and other registration charges. The lender will provide with up to 80% of the total value of the property. 

They will let you choose a loan term that ranges from 15 to 30 years. If you choose a longer term out of convenience, they will charge you hefty interest every year. You will have to pay the loan back over time with the help of big EMIs. 

The EMI for your home loan generally should not be more than 40% of your monthly income. This will ensure that you are not stretching your budget beyond reason.

Cover your home loan

Though it is not mandatory to purchase any sort of insurance and secure your home loan. Paying your EMIs when you have a stable income is easy. But, have you thought about how your family will survive if something happens to you? If you’re the main earner? to whom do your liabilities get transferred? 

Your all liabilities will be transferred to your family and if they are not able to repay your liabilities the property or things for which loans are taken will get possessed by the financial institution. 

This will put your loved ones in a complete financial crisis and could leave them without a home. With all this in mind, securing your home loan with an insurance plan makes complete sense.

Your insurance plan provides them with financial security when they need it the most. If you aren't around to provide for your family anymore, the insurance policy payout will help them repay the loan.

Why Term Insurance?

There are different ways in which you can secure your home loan. There are specific loan insurance products available in the market. But, most people opt for a pure-term plan instead. Top reasons you should protect your Home Loan with Term Insurance plan,

Higher Cover for Affordable Premiums

Term plans are pure protection plans. They do not offer any additional maturity benefits, this feature makes them the most affordable life insurance product in the market. You can get a life cover of Rs. 2 crores for just Rs. 1,000 per month with a term insurance plan. Generally, it is advisable to opt for a life cover that is a little more than your home loan amount. The payout from the term policy will allow your nominee to pay off the loan/liabilities and have financial stability in future life. 

Benefit Amount

If you opt for a loan cover insurance product, the cover amount depends on the pending loan payments. So, the cover amount decreases over time. also, it covers only the loan and no life. 

When you purchase a term plan, the sum assured remains the same during policy period, irrespective of your loans or other liabilities. Since these policies offer a fixed benefit, they are often viewed as the safer option to secure your home loan as well as life and will be paid with the whole sum assured.

Loan Transfer Support

At some point, you may choose to switch your home loan from one lender to another because of the low-interest rate or better service. If you do this, it could change your interest rate and EMI amounts. Since a loan insurance policy depends on the loan and repayment, there could be a lot of paperwork to complete the loan transfer. Thankfully, term plans are not dependent on these details. 

So even if you transfer your loan from one lender to another, your term plan will continue to provide the same amount of cover.

Beneficiary

For home loan insurance plans, the lender becomes the beneficiary. So, the insurance payout goes to the lender if anything happens to the policyholder before they finish repaying the loan. The family will not get any financial benefit except the closing of the loan.

With a term plan, the beneficiary can be a family or family member. The policyholder chooses a beneficiary at the time of purchasing the policy. The beneficiary get the whole amount of sum assured and he/she can choose how to use it.

Delayed EMIs/ EMI Pause

As we saw during the pandemic, as per government guidelines and banker's support, home loan taker could have paused their EMIs for a certain period to get help surviving the financial crisis. In case the home loan taker delays an EMI payment, they become accountable to pay an additional interest amount. Unfortunately, the home loan insurance plan does not increase the sum assured amount to accommodate the new interest. In case something happens to the policyholder, his/her family members will have to pay the additional interest amount from their pocket. Considering such a scenario, Policyholders should pick a sum assured amount slightly more than the value of the home loan. This will help them cover the additional interest.

Individuals who are taking a home loan should consider their options carefully before choosing between home loan insurance and term insurance. Those who already have adequate life cover through the term life insurance plan can opt for a separate home loan protection plan as necessary. If they do not have any life coverage yet, opting for a pure-term plan might be the better choice.