What Is Home Loan Insurance And Why It Is So Important?

Buying our own house is a dream that everyone shares but not each one can fulfil this dream. When purchasing a home, there are many factors to consider, and choosing the best housing loan is among the most important decisions we need to make. Although there are numerous aspects, such as interest rates and loan terms, which we pay special attention to, another item that we frequently overlook is the additional products, such as an insurance plan, that we require with a house loan. Check out the article to understand home loan insurance and why it is important. 

What is Home Loan Insurance?

Another name for Home Loan Insurance is the Home Loan Protection Plan.

Home loan insurance is offered by almost every banking institution where the policyholder pays the lenders or bank the residual or balance of the borrower’s house loan insurance coverage amount in the case of unforeseeable situations, for instance, the death of a borrower.

In simple words, in case of certain death, the home loan protection plan clears up the remaining amount of the home loan taken from a bank or any financial institution by the borrower.

Typically, the loan term and policy term are the same.

You can calculate home loan EMI on the EMI Calculator and your eligibility using the Home Loan Eligibility Calculator.

What are The Types of Home Loan Insurance?

Three types of banks provide loans to home loan borrowers. These plans are categorised as follows,

Plan for Level Coverage

During the loan duration, the policyholder protection coverage doesn’t change.

Plan for Hybrid Coverage

During the first year of the loan, the coverage is finished. As the total loan balance falls over time, it starts to decline.

Plan for Reducing Coverage

Both the insurance and the remaining loan amount decrease with time.

Why Home Loan Insurance Is Important

• Money Lenders have the right to seize a borrower’s home and sell it to recoup the debt if the borrower’s family cannot repay the mortgage. But doing so costs the lender a fortune in foreclosure fees. 
• Lenders can avoid unnecessary debts if the borrower has an effective home insurance policy on a home loan.
• House loan insurance keeps one’s dependents and family out of debt in any unforeseen circumstances. 
• Your family members will be secure, and the insurance will cover the remaining balance on the home loan.
• The death compensation you get from the housing loan insurance plan qualifies for tax benefits per Section 80C under the Income Tax Act.

Importance For Borrower

As we are all aware, if a borrower fails on their commitments, house loan insurance protects the amount of the outstanding mortgage.

This kind of circumstance could arise due to the home loan borrower’s erratic job or premature demise. 

A basic plan with additional benefits and extras for more comprehensive coverage are both options. 

For debtors, insurance against mortgages is essential since it ensures that their dependents won’t become homeless while away or in an emergency.

Importance For Lender

Lenders don’t like it since it’s not lucrative when their payments default. Lenders insist on housing loan insurance to keep borrowers from accruing enormous debt. 

If the loan borrower passes away, the lender will suffer a large financial loss, notably if the user was indeed the family’s sole source of income.

Structure for Home Loan Insurance Plans

The structure for a Home loan insurance plan or protection plan is given below,

EMI

The EMI ( Equated monthly instalments) payments have to be paid until the home loan tenure.

The insurance cost is combined with the house loan’s EMI and paid as one for the Home Loan Protection Plan.

The payment as Single Premium

A singular premium is made in this payment method at the time insurance is purchased. 

Sometimes, mortgage finance providers combine this premium payment with the loan balance.

Limited Pay 

 It is a different choice in which the home loan insurance premium can only be paid for a specific amount of time during the loan’s term.

What Covers Under Home Loan Insurance

Most house loan or home loan protection policies include optional but extremely advantageous rider plans in addition to loan insurance in the event of death. 

These plans additionally include:

What is The Difference Between Home Loan Insurance and Home Insurance?

Home Insurance and Home loan insurance sound similar but both are different from each other.

The key difference between both are listed below,

• Your house is safeguarded by home insurance from a range of dangers, such as:
•  A person’s house or other property is damaged during a theft.
• Natural catastrophes like earthquakes, hurricanes, fires or floods can do a lot of harm. This means the home insurance covers the damage done by disasters.
• In opposition to that home loans taken from the financial institution are covered by Home loan insurance.
• Only the remaining loan liability as of the time it was brought is covered by this plan.

Home Loan Insurance vs Term Insurance

If the insured person passes away, a Term Insurance plan provides specific protection coverage that is compensated. 

The death payment of term insurance aids the family financially by covering any outstanding debts or serving as loan repayment. 

There are unique term insurance policies that additionally provide maturity rewards if the policyholder lives longer than expected. 

A Home loan protection plan operation, however, is more intricate. The sanctioned home loan amount is covered by the HLPP. 

The life insurance will decrease as the debt is paid and eventually disappear.

Also, read Benefits of registering property on wife’s name

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