What is a Home Loan Protection Plan and What are its benefits?

A home loan protection plan protects your family in case of your untimely death. Such a plan gets your family insured in case they are unable to repay the loan amount and ensures that the bank does not seize your home. Read the article to know all about home loan protection plans, their many benefits and how it secures your family today.

What Is A Home Loan Protection Plan?

When a borrower opts for a home loan, the house is deemed as collateral, until the entire loan amount is repaid back.

For a sole earning member of the household, it may become difficult for the family to repay the loan in case of the borrower’s unfortunate death. In such cases, banks are forced to seize the house as repayment of the loan. 

This is where a Home Loan Protection Plan (HLLP) can help you as it is an insurance plan that safeguards the borrower’s family in a crisis during the entirety of the loan term.

Under such a plan, the insurance company settles the remaining loan amount with the bank in case of the borrower’s death. 

How Does A Home Loan Protection Plan Work? 

Let’s understand this with a sample use case, where the loan amount is 50 Lakhs and the insurance policy term is for 360 months. 

The sum assured by the insurance company is equal to the loan amount at first and keeps decreasing as the years go by. 

Now, if the borrower suffers a death in the 216th month, the insurance company will settle a claim for the rest of the months in the term (360 – 216 = 144) 

The insurance company will provide a sum of 30 lakhs as per the 144th month to the nominee. It could also settle the claim with the bank directly and provide the balance to the nominee.

Source – SBI Bank

What Does A Home Loan Protection Plan Cover? 

Apart from borrower’s death, most banks also club home loan protection plans with rider plans which can cover –

1. Critical Illness
2. EMI coverage for 3 to 6 months on sudden unemployment
3. Loss of Income due to disability

How Can You Avail A Home Loan Protection Plan?

It is easy to procure a home loan insurance plan through banks or other lending institutions.  When you apply for a home loan with a bank, the home loan insurance is usually clubbed with it. 

There are 2 ways to pay the insurance premium – 

Single Payment 

Most home loan protection plans offer a one time payment option, or home buyers can also club the entire premium with the loan amount. For example – If the insurance premium on an INR 50 lakhs loan is 2 lakhs, then a homeowner can take a loan of 52 lakhs. 

Payment with EMIs

The home loan insurance premium is clubbed with your equated monthly instalments (EMIs), and it is paid every month during the entire loan tenure. In such a case, EMI will consist of the Principal, Interest, and the Premium Amount.

What Are The Benefits Of A Home Loan Protection Plan?

While the biggest advantage is that you do not lose a significant asset such as your house, here are a few other benefits you should know about –

1. It is easy to purchase 

Most home loan protection plans are offered directly by the banks when you apply for a loan. Since the two are usually clubbed together, it becomes a seamless payment process for both lender and borrower.

2. It covers the entire duration of the home loan

The home loan insurance plan covers the borrower and their family for the entire duration of the loan. This ensures that the borrower’s family is protected in case of their demise, and the insurance provider settles the remaining loan amount with the bank.

3. It provides tax benefits 

You can claim a tax deduction under Section 80C on 1.5 lakhs of the premium payment. However, this facility will already be valid on your total EMIs if your premium is clubbed with them.

4. Most banks also provide rider benefits 

A home loan protection plan can come with add-on benefits and cover illness, accidental death, & unemployment periods. Do note that the premiums for these plans will be on the higher side as well.

5. A single policy can cover joint loan borrowers 

No separate plans are needed as one policy covers multiple borrowers of a loan. This saves significant premium costs. 

6. You can convert payment modes

Some home loan protection plans also offer you the chance to convert your payment mode. If you have acquired additional funds that will cover the entire premium in one go, a few banks do provide the option to convert your EMI premium payments to an entire single lump-sum.

How Is A Home Loan Protection Plan Different Than Home Insurance?

While home insurance covers your house from physical damage, a home loan protection plan clears your debt if you cannot repay the loan in case of illness or death. 

Further, you can get other insurance plans at any stage of your home loan duration. But, a home loan protection plan can usually be bought only at the beginning, when you apply for a loan.

Is It Mandatory To Buy Home Loan Insurance?

While it is highly recommended to buy an HLLP, it is not mandatory to get one as per the Indian government or RBI. 

However, some banks have policies in place to safeguard lenders’ interest, and make it mandatory for a borrower to purchase such an insurance. In such cases, it will be clearly mentioned in your home loan agreement. 

Thus, it is advisable that you compare home loan insurance plans and buy the best home loan protection plan that is suited for you.

Home Loan Protection Plan Premium Calculator

Remember that your home loan insurance plan premium highly depends on your age and medical conditions. This means that your premiums will likely be higher if you are older. 

You can use an online premium calculator to get an estimate of the premium that you may have to pay on your home loan. This will give you a rough idea of the premium amounts before you set out to apply for a home loan. 

Want to know more about Home loan Insurance? Read our in-depth article on Home Loan Insurance and its importance

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