Home Loan Insurance
Once you take the route of a home loan, it becomes a long-term obligation extending up to 25 or 30 years, during which the instalments (loan amount plus interest rate) need to be paid. Since this is such a long period and with life's uncertainty, it is expected that the family is concerned about the transfer of responsibility for the loan because of any unforeseen and unfortunate event like the death of the borrower or financial inability to repay the amount due to unemployment or loss in business. Therefore it becomes necessary to have an insurance plan for home loans to manage such incidents by insuring loan amounts for your HDFC Home Loan. When the borrower dies, the insurance firm pays the remaining loan amount. Thus, the deceased’s family does not need to worry about the non-payment of the loan when the loan insurance is taken.
Insurance on a home loan acts as a safety belt for the family if the sole earner meets with an eventuality. A home loan insurance plan can be bought while availing of the home loan. It is valid throughout the loan period. Since it is not compulsory to get insurance for your home loan, it expires once the amount is repaid. It can help the borrower reduce his burden of monthly instalments and the home loan processing fee if he/she suffers a significant loss in business or loses his job. The Home Loan Protection Plan (HLPP) kicks in during such scenarios, and the family can claim the money in the policyholder's name. This money is equivalent to the remaining amount of the home loan that needs to be paid to the lender and saves themselves from losing ownership of the house.
Some of the key characteristics and benefits of a Home Loan Insurance plan are -
- The insurance provides the remaining loan amount lump sum that can be used to repay the loan.
- The insurance policy can expire if the borrower does a home loan balance transfer or s restructuring the loan tenure.
- If the borrower decides to close the home loan earlier than the tenure, the policy ends.
- The nearest of the kin or the beneficiary mentioned by the deceased policyholder gets the lump sum.
- The borrower also has access to tax benefits under various sections of the Income Tax Act.
- If the policy is upgraded to premium, specific medical issues like disability or chronic illness can also be covered and adjusted in the insurance amount. In this case, the sum is not provided as a whole. Instead, it is paid on an annual basis.
- The Home Loan Protection Plan does not include deaths by suicide, war or due to natural calamities.
- The borrower can convert the insurance premium into the monthly EMI for his/her home loan.
There is no specific type of home loan insurance provided by the firms. There are at least three different types of insurance plans that the borrower can buy -
- Level Plan : In this insurance plan, the coverage of the amount remains the same throughout the loan tenure.
- Reducing Cover Plan : This is analogous to the floating rate method to calculate the home loan interest rate. The coverage and remaining loan amount keep decreasing simultaneously.
- Hybrid Cover Plan : As the name suggests, it combines both the Level Cover Plan and the Reducing Cover Plan. The coverage remains constant in the first year of the loan tenure. It starts decreasing as the loan amount reduces with time.
Conclusion :
One key feature of HLPP is that even if the borrower has not paid any premium for the insurance so far, his family will be eligible for obtaining the outstanding amount for the loan. It is a great way to counter the economic liabilities of the borrower's family, providing more comprehensive coverage and flexible tenure.
Must Read:- Basic guide to applying for a Home Loan
