Term Insurance for Home Loan: Everything You Need To Know
To make the dream of building a house a reality takes a lot of planning. Many individuals opt for a home loan and pay the EMIs using their salaries. But, if something happens to them and the family income is lost, their family might not be able to pay for the home loan, and the lender may repossess the property.
Considering this, you can either buy a term plan with higher coverage so that your family can pay the home loan using the sum assured and use the remaining amount for their needs, or you can opt for a decreasing term insurance policy linked to your home loan, where the sum assured reduces over time, aligning with your outstanding loan amount.
Why Should I Use My Term Policy to Secure My Home Loan
Whether you’re concerned about burdening your family with debt repayment or you’re the sole earning member, buying a term plan makes complete sense. Your family may not be able to pay the EMIs after your demise, resulting in the lender repossessing the property. This is where a term plan can help. In the event of your demise, the sum assured from the term plan can be used to pay off the outstanding home loan, preventing your family from financial burden and potential repossession of the property. Your nominees will receive the sum assured, which can then be used to clear the loan, with any remaining amount available for their needs.
How Much Term Insurance is Required in the Case of a Home Loan
Safeguarding the family against any outstanding loans is the main objective of buying a home loan linked with term insurance. However, you must take into account your family’s future needs and home loan amount while choosing a sufficient cover. It is always advisable to get coverage of up to 10 to 12 times your annual income and the outstanding sum of the home loan. For instance, Bhanu is a 30-year-old man with an annual income of ₹8 lacs along with an outstanding loan of ₹40 lacs. In that case, the adequate life cover should be ₹1.5 Crore (₹8 Lacs x 10 = ₹80 Lacs + ₹40 Lacs).
Why Term Plans Are Best for Home Loans
Term plans have cheaper premiums compared to other insurance plans, making them a popular choice among policy buyers. Though loan providers offer home loan protection policies, most policyholders prefer to opt for a term plan instead due to its many benefits over a home loan protection plan.
Here, we’ve listed the benefits of term insurance for home loans:
- Term insurance offers lower premiums: Term plans are typically cheaper compared to other life insurance products because they only provide death benefits. Under a term insurance plan, an individual can get a high life cover of up to ₹1 Crore in exchange for just ₹1,000 per month.
- Sum assured remains constant: When you buy a loan cover plan, the coverage amount depends on the remaining loan, so the cover amount will be reduced over time. Under a term insurance plan, the sum assured remains constant regardless of your loans. These plans offer fixed benefits, making them a more secure option.
- Transferability: What if you have to transfer your home loan from one loan provider to another? If you take a loan cover plan, you may end up with a lot of paperwork to switch to a new loan provider. But under term plans, you don’t have to worry about it. You can transfer your loan provider hassle-free.
- Guaranteed benefits: Under the term insurance plan, your family will get the guaranteed benefit regardless of any outstanding loan amount. It means your family receives a death benefit, which can be used to clear outstanding home loans, with any remaining amount available for maintaining living standards, children’s higher education, or paying other debts.
- Flexibility to choose policies: Home loan providers come with a basic protection plan, which may not fulfill varying needs. Under a term insurance plan, you have the benefit of choosing different term plans and selecting the one that best suits your needs. Home loan protection plans may also include commissions for mediators, which is not typically the case with term insurance plans.
Conclusion
Many of us are unaware of the benefits of opting for term insurance for housing loans. By doing so, you can secure the dream of owning your house. By getting term insurance linked with a home loan, you can ensure your home loan EMIs are covered and safeguard your family – all of this can be done under a term plan.
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